Capacity Crunch
in the BPA Market?
A BWD Roundtable Event

Issue 5: June 2024

Capacity Crunch in the
BPA Market?

In May 2024, BWD hosted a roundtable to discuss constraints in the Bulk Purchase Annuity (BPA) market. Six BPA insurers attended along with the superfund, Clara, and and representatives from across the pensions industry.

Roundtable Synopsis:

As demand for pensions de-risking intensifies, can the BPA insurance market supply - boosted by new entrants & Superfund transactions - keep up?

Or are people constraints a bigger problem, & if so, who will crack first: administrators, brokers, pricing actuaries, legal advisers or professional trustees?

Before the event, I asked the LinkedIn pensions community:

“Is there (more of) an Insurance capacity or People constraint?”

The results were overwhelming with 84% identifying a shortage of people being the biggest constraint in the BPA market right now. Read on to see if those attending the roundtable agreed.

Highlights from the roundtable

Mark Cliff was invited to kick off the roundtable by describing the recent Debenhams deal which saw the Scheme climb out of PPF assessment after 4 years and secure 100% of promised benefits for all 10,400 of its members with Clara, along with £4m of back-payments paid in the first payroll run following the “very smooth membership experience on transfer to Clara...”

Mark explained why Clara had been chosen and there was a discussion on why some insurers had chosen not to quote during the brokering stage – with some insurers pointing to the need to be selective in which schemes they will quote on to avoid wasting limited people resources.

The 3 ‘C’s

Throughout the discussion during the roundtable, ‘3 C's' emerged as a constant theme:

CCAPACITY = insurer capacity is strong, supported by the emergence of new entrants and pension superfunds.

Whilst the UK BPA market continues to grow – reaching a record £50bn of transactions in 2023 – the emergence of new entrants such as M&G, Royal London and Utmost (with more rumoured), along with new global reinsurers and the increased use of Funded Reinsurance, has meant insurance capacity is strong.

CCONSTRAINT = appears to be more people-related.

A shortage of people was highlighted by all attendees as the biggest constraint in the BPA market (echoing the views of those responding to my LinkedIn poll above).

This was particularly identified in the shortage of pricing actuaries (required during the quotation stage), and a lack of specialist pension scheme administrators (required to fulfil data cleanse tasks during the buy-in to buy-out phase).

To combat this, many BPA insurers have launched streamlined bulk quotation solutions – primarily aimed at smaller schemes – that provide trustees with continuous (executable) pricing. One example is Just’s Beacon which it says: “…was used by 17 employee benefits consultants to transact for their clients in 2023.”

CCOLLABORATION = a desire for insurers to work together to improve efficiency and to potentially increase capacity.

It was encouraging to witness a genuine desire amongst the insurers to work together to improve efficiency – perhaps via a standardised, quotation system (akin to that used by reinsurers).

Collaboration could also extend to insurers coming together to share risk. In the US and Canada, so-called “jumbo” deals (i.e. those over £1bn) are often split between one (or more) insurers – for example, the $16bn IBM deal in the US in 2022 saw MetLife and Prudential Financial each share 50%.

Will we see BPA insurers in the UK following the trend in the US and Canada, with insurers collaborating to share risk on the upcoming jumbo deals that may transact later this year?

Jumbo Watch

I will be keeping a watchful eye to the skies over the rest of 2024 on jumbo deals in the UK, US & Canada – where the pension risk transfer market continues to grow at record-breaking levels – with jumbo deals particularly dominating activity in the US.

Country	Month	Scheme	Insurer(s)	Size
USA	Mar 24	Verizon	Prudential Financial, RGA	$5.9bn
USA	Feb 24	Shell USA	Prudential Financial	$4.9bn
USA	May 24	Entergy	MetLife	$1.2bn
UK	May 24	ICI	Legal & General	£900m
CANADA	Feb 24	Ford Canada	RBCI, Sun Life, Desjardins	$923m

Thanks to….

My thanks to Mark Cliff of Vidett Limited, Tiziana Perrella of Dalriada Trustees Limited, Ashu Bhargava of Clara and Adam Davis of K3 Advisory - along with everyone else who attended our BPA roundtable - for your views and insight.

Get Involved…

This was the first of a series of roundtables where we will be inviting guests from across the pensions and insurance industries, both in the UK and globally.

Our next roundtable will look at the topic of “Alternative Endgames” with a particular emphasis on “run-on”. Again, we will invite representatives from across the pensions industry, including professional trustees, actuaries, investment advisers & ESG fund managers, pension lawyers, insurers, etc.

Future Roundtables:

Alternative Endgames
DC/CDC
Responsible Investment
DEI
AI technology
Pension Risk Transfer in the US and/or Canada

Interested in attending?

If you would like to attend our next roundtable on “Alternative Endgames” or any of our future roundtables on the topics shared (please feel free to suggest your own topic!) Simply click below.

I'M INTERESTED

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