LONDON — As life insurers brace for another year of high transaction volumes, the UK bulk annuity market is witnessing a shift, with new entrants focusing on smaller pension schemes. This evolution in the market is expected to widen access to risk transfer options, ensuring that more pension schemes can engage in liability transfer.
Strong Market Projections for 2025
Fitch Ratings forecasts that bulk annuity transaction volumes will exceed £40 billion in 2025, maintaining the high levels seen in recent years. New players such as Royal London, Utmost, and Blumont Annuity are entering the market, adding to the competition and bringing capital and asset-management expertise that enhances their ability to work with smaller pension schemes. Traditionally, larger transactions have been the focus of the market, but the presence of these new entrants is shifting the landscape.
Government Policy and Liability Reduction
The UK government has proposed a policy allowing defined benefit schemes in surplus to return excess assets to sponsoring employers. Fitch acknowledges that while this change may impact near-term annuity transaction flows, it anticipates continued activity in the market as many employers remain focused on liability reduction.
Adaptation by Established Insurers
To address the needs of smaller schemes, established insurers are simplifying transaction models while still engaging in larger deals, supported by their capital reserves. The market now includes providers offering different approaches based on scheme size, capacity, and investment strategies, giving pension scheme sponsors more options for transferring liabilities.
Barriers to Entry and Regulatory Considerations
Despite the influx of new competitors, entry into the bulk annuity market remains restricted due to regulatory requirements, long-term capital commitments, and the specialized expertise required for asset sourcing and actuarial risk assessment. This limits the number of insurers able to offer these services, ensuring that market dynamics remain relatively stable.
Reinsurers are also playing an increasing role. InEvo Re, formed by Macquarie Asset Management, completed its first UK reinsurance agreement in Q1 2025. Fitch expects funded reinsurance to continue supporting large transactions, although it does not anticipate this route accounting for more than 30% of annual premiums.
Regulatory Developments and Risk Management
Regulatory considerations remain at the forefront of market developments. The Prudential Regulation Authority (PRA) has announced the 2025 Life Insurance Stress Test (LIST), which will evaluate insurers’ resilience under adverse conditions. Additionally, the PRA has proposed removing the pre-approval requirement for using the matching adjustment on qualifying assets. If implemented, this change would give insurers greater flexibility in investment timing, though risk governance and contingency planning standards would remain unchanged.
Insurers are also increasing their use of illiquid assets, such as private credit, which raises concerns about transparency and valuation. Fitch expects insurers to maintain diversified portfolios in line with regulatory expectations to manage these risks effectively.
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