Small scheme bulk annuities to surge in 2020, says LCP
Keen insurer pricing and streamlined services will lead to a surge in demand from smaller schemes to undertake bulk annuity transactions, Lane Clark & Peacock (LCP) predicts.
Over the last 12 months, deals covering liabilities of less than £100m have already started to increase in number, but the consultancy said 2020 could see further growth of up to 25%.
The number of buy-ins and buyouts for this segment of the market had fallen by 30% between 2014 and 2019, from 150 to 106 transactions, LCP analysis found.
But smaller schemes are now able to use a number of streamlined services to complete transactions. LCP said it had aided ten buy-in and buyout transactions through its own service in the last six months.
Partner David Stewart argued that streamlined processes can help smaller schemes get insurer engagement in a busy market by utilising features such as pre-negotiated contracts.
He added: "There are expected to be a small number of mega-sized transactions this year, which should help open the door for smaller schemes that are transaction ready and use a streamlined approach to market that is attractive to insurers.
"Despite the upheaval of Covid-19, we continue to complete transactions and are expecting the number of transactions under £100m will increase by 25% this year."
Smaller transactions are often completed by insurers in order to diversify risk from multi-billion-pound transactions.
Yesterday, Aviva announced it had completed a £95m full buy-in with the British Bankers' Association Pension Scheme. The deal was facilitated using LCP's streamlined service for smaller transactions.
Law Debenture director Sean Burnard - who acts as sole corporate trustee of the scheme - said the streamlined service had given the scheme "confidence that we are using a robust and well-used process to obtain a high-quality insurance policy".
Similarly, Aviva head of bulk purchase annuity origination Jamie Cole said streamlined processes allowed the insurer to quote and execute transactions efficiently.
"Knowing that a transaction will be expertly managed with pre-agreed governance and legal frameworks in place and well-prepared data is a tremendous benefit," he continued. "It gives the insurer confidence to commit resources to a greater number of small scheme transactions and it helps schemes to secure attractive pricing in a busy market."
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