Aviva answers key questions facing the bulk annuity market
The 2014 budget presented insurers with a stark reminder of the benefits of having a diversified product line.
No annuity provider completely escaped a hit to their share price, but the benefits of having a breadth of product offering and multiple distribution routes were plain to see.
A handful of insurers, including ourselves, have been able to immediately divert capital from the individual to the bulk annuity business. Others have been busy trying to launch themselves into the bulk annuity market.
This brings additional supply to match the demand that a strengthening economy is expected to bring.
So given this seismic shift, there are many questions for a thriving bulk annuity market:
• How will the new landscape affect the demand and supply for bulk annuities?
• What will members want from an insurer given the new flexibilities?
• How will trustees want to be served?
Predicting bulk annuity yearly volumes is something all good commentators enjoy; £10bn to £20bn is the range you are most likely to hear, which can only mean more ‘Jumbo' deals.
Given this commentary you could be forgiven for thinking that the future is only about the ‘Jumbo' deals and headline grabbing volumes transacted. It is not, and especially so here at Aviva.
We believe that developments in the de-risking market should be to the benefit of all-sized schemes.
Clearly there is a greater restriction on adviser fees for the smaller deals so a different approach may be needed.
The increase in the availability of capital turns on the supply tap - but this alone is not enough.
More interested parties mean an even greater focus on an efficient tender process is required, especially as new insurers develop their offerings. Many will remember the early days of BPA where multiple rounds of quotations stalled many transactions (the most quotes on a single deal we did was 35!).
As we discussed in our previous article, timing is so often the key to value for trustees. We should not lose sight of this as supply increases.
It's expected that many more members coming to retirement will transfer part or all of their DB benefits to DC to take advantage of the 2014 budget flexibilities.
The aspiration is for a place where bulk annuity members can understand and engage before, at and during their retirement. They should be able to self-serve online and be able to action all DB and DC pensions in one place, choosing the income option that is best for them.
Other benefits and insurance policies should have the ability to be viewed and renewed automatically, netted off against the income due.
It's fair to say the insurance industry is behind the curve in the digital arena. However, at Aviva we believe in ‘digital first', and have already seen great steps forward with adviser and customer platforms.
The de-risking road can be long, often winding towards an eventual buyout. An insurer's role is not only as the end destination, rather it's about being an ally to help along the way.
Many trustees need help towards their end goal. This is when an insurer's assistance is vital. A clear explanation of the process, roles and responsibilities is key to this. More trustee-specific information can be found on our website.
For many trustees this is the first time they've experienced a bulk annuity transaction. So with all parties working in collaboration - and clear on what they want and have to do - the process can be as smooth as possible.
The trustees must know what they want, and the insurer must be able to accommodate this, offer solutions the trustees haven't considered, as well as supporting their members' needs and requirements.