What trustees should ask new buyout market players
Defined benefit schemes’ abrupt reversal in fortunes has attracted insurers’ attention.
Now that de-risking transactions are an option for increasing numbers of DB schemes, new entrants are coming to market, with one consultant saying they are speaking to half a dozen insurers who are thinking about moving into the space.
M&G re-entered the bulk annuity market in 2023 and has completed two buy-ins, totaling around £600m, to date.
While price remains an important consideration, trustees should consider a wider range of factors, says Iain Pearce, partner and head of alternative risk transfer at Hymans Robertson, in a November 2023 report, What new entrants mean for the bulk annuity market.
Pearce says: “Trustees are already typically assessing insurers on a much wider range of capabilities than when many of the now established insurers joined the market. These include financial strength, ESG factors, administration capacity and quality, buy-out capabilities, and brand awareness.
“It’s therefore no longer enough for a new entrant to simply be willing to write long-term pensioner buy-ins at lower margins to get a foothold in the market. Insurers need to show their capabilities in a range of areas, and work hard to give as much assurance as possible to back up their business plans and promises.”
Trustees should get to know the new providers, said Pearce. “Trustees that spend time considering whether and how to talk to new entrants are likely to get the most engagement.”
Schemes can also benefit from engaging with new entrants who are keen to get a foothold in the market, observed Pearce.
Exclusive deals can sometimes deliver great value. One consultant added that a scheme she advises achieved one of the best prices she’d seen in 2023, with a discount of over five percent, as a result of new business aspirations the insurer had.
As ever, trustees must do their homework – even more so when they are transacting with an insurer who is new to the market. Pearce suggests that trustee boards could ask a new player for more information as part of the quotation process, such as information about administration plans and capabilities, or their responses to ESG questionnaires.
New market entrants may be quite selective about the schemes they seek to transact with. They are likely to identify the transactions with the highest likelihood of success and put their energy into those areas, said Pearce.
Trustees should therefore be clear-headed about their scheme’s objectives and how they plan to assess insurers. Getting their ducks in a row is likely to pay off.
