Insurers Jostle for Pension-Risk Transfer Bounty

Growing numbers of U.K. defined benefit plans are looking to offload liabilities — and now they can afford to make them someone else’s problem.

Chris Ratcliffe/Bloomberg

Chris Ratcliffe/Bloomberg

U.K. pension plans are expected to offload around £15 billion ($20.3 billion) in liabilities this year, which has insurers fighting for their shares of this lucrative de-risking market.

Slower-than-anticipated growth in life expectancy and strong investment returns led defined benefit schemes to outsource about £12 billion worth of liabilities in 2017, according to Lane, Clark & Peacock’s 2018 pension de-risking report.

The investment consultancy predicted that buy-ins, buy-outs, and bulk annuity arrangements will set a new record in 2018. The previous high occured in 2013, when schemes transferred £13.2 billion.

In an interview with Institutional Investor, Paul Darlow — a pensions and insurance specialist at LCP competitor Xafinity — called the £15 billion estimate “eminently achievable,” due to a “sizeable pipeline of pension schemes that are very keen to transact.”

“There are very few pension schemes that don’t want to” ensure their plans, he said. “£15 billion is a lot of money, but it is still a very small percentage of overall U.K. pension scheme liabilities.”


LCP described “expanding ambitions” for the U.K. de-risking market, stating that Aviva alone has targeted £3 billion-plus in 2018 transactions. Aviva was unable to confirm the figure at the time of publication. But in October, Andy Briggs, chief executive officer of its U.K. insurance arm, confirmed plans to expand the bulk annuity team.

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LCP anticipated a 50 percent increase in the volume of U.K. pension liabilities insured in 2018 as schemes take steps to reduce risk. The biggest surprise has been the growth in the number of pension schemes that can afford to offload risks, given the Brexit vote, according to report author and LCP partner Charlie Finch. “2017 has been a good year for most pension schemes, in reference to the buyout measure,” he told II. “In terms of the U.K. life insurance market, it is one of the fastest growing markets.”

Finch said that insurers have reached capacity in many of their other business lines, and are shifting attention to de-risking, where the potential to “write significant volumes of business” still exists. “There are a large number of pension schemes looking to transfer their longevity risk at the right price,” he said.

The LCP report confirmed that incumbent insurers have increased their collective capacity by £5 billion since 2017. Total insurer capacity for 2018 — including buy-ins, buy-outs, and bulk annuities — is now upwards of £25 billion, LCP estimated.