The risk-transfer market continues to build momentum across its various products. 2023 saw a record number of transactions over a billion pounds priced by insurers. This translated into record-setting transactions, namely the full buy-in transactions between the Boots Pension Scheme and Legal & General, which Cardano led, and between the two RSA pension schemes and PIC. We also saw the long-anticipated first consolidation transaction between the Sears Retail Pension Scheme and Clara.  With new entrants expected in 2024 and a supportive regulatory backdrop, the risk-transfer market is set to be one of the most dynamic corners of the DB pensions industry.  

Billion-pound transactions will dictate the key themes for the bulk annuity insurance market, with at least 20 such pension schemes expected to be priced in 2024. These ‘mega’ transactions have brought about a spur of innovation to address the challenges posed by underwriting benefits and illiquid assets at scale. Capacity is supported by a buoyant reinsurance market which has increased the appetite for annuity business following growth in mortality business being underwritten, primarily in the US, and substantial capital flowing into offshore funded reinsurance structures. No wonder the number of providers looking to enter the bulk annuity market is at an all-time high!  We expect at least two of these to start writing new business during 2024. 

Regulatory change should also be supportive of insurers, albeit the picture is somewhat nuanced if you look more closely. Solvency UK, the revised regulatory regime for insurers, should be in full swing  towards the end of 2024. Key changes include the ability to invest in a wider spectrum of yielding assets and a reduction in the amount of capital insurers need to hold back to protect policyholders. However, there appears to be a general undertone of nervousness coming out of the PRA, who has made no secret of its reservations with some of the trends in the insurance market. The increased use of funded reinsurance and the larger transactions insurers are taking on are some of the key themes picked up by the PRA. Trustees and corporates looking to transact with an insurer in 2024 will want to carefully consider how they manage the resulting counterparty exposure.

But it is not all about buy-ins. There was a number of sizable longevity swaps transacted during 2023. The drivers vary from schemes looking to lock-in reinsurance capacity to those seriously considering a run-on strategy. This latter driver could be supported by the tax changes recently muted by the Government.

Consolidation is also on the agenda of some schemes still struggling to improve funding levels and exposed to a weaker employer covenant. The recent Sears transaction plus the watering down of capital requirements by TPR could inject some excitement back to the superfunds space. The other form of consolidation we will be keeping a close eye on in 2024 is the expanded role the Government is proposing for the PPF. This change could be transformational to a highly fragmented DB pensions landscape, but with a general election around the corner we think this one may well drop into 2025 and beyond. 

The bottom line is that there has never been so many options for trustees and corporates to transfer the risk embedded in their pension schemes. The single most important word for pension schemes looking to tap the insurance market is preparation. This is especially true for small and medium sized schemes who are having to work harder to make it through the insurers’ triage process. Expert advice along the way is not only advantageous, it is necessary.