Given the huge demand and volumes predicted for this year (and beyond), more capacity in the market feels like it can only be good news for the industry. However, given the relative stability of the previous eight insurers in the market, which have not changed since 2012 until M&G’s reappearance, will these new entrants be able to compete with the established players? And what will any consolidation do to change things? Only time will tell, but what should these new entrants have considered to ensure they are successful?
Success criteria:
The ‘basics’
If a new entrant is permitted to write business in this market, given the PRA’s regulation we can take as a given that:
- The PRA believe they have sufficient capital to back the business they intend to write,
- They have an appropriate model - whether that be the PRA’s standard model or their own which has been PRA approved,
- They have appropriate assets that are MA eligible,
- They have appropriate use of reinsurance.
- They have an appropriate pricing model and can compete on price versus other insurers in the market.
People & experience
Sufficient resources in the areas of pricing, business development, operations and post transaction management will all be critical. We believe that having some employees who are very experienced in this market will also be extremely helpful in building credibility with trustees and brokers, working through issues and delivering successfully. Given the busyness of the market, the new entrants may need to pay above market rates to hire those individuals.
Administration
Typically, an especially important part of the decision making for trustees selecting an insurer is around how their members will be looked after once the buy-in contract is signed. It will be interesting to see whether new entrants choose to build an in-house team, use an established TPA or a TPA without experience in administering for insurers.
Having a unique selling proposition
Given the established nature of the market and the insurance providers, new entrants will want to consider what they might be bringing to the table that is different to other providers. For example, this might be something in their customer service offering, a way to source different, or better assets or targeting schemes of a certain size that might be underserved by the current market.
Track record
New entrants are not going to have a track record when they enter the market, unless (like M&G) they have already done this before under another guise. A popular option is to start with a transaction covering their own scheme, as M&G did recently, to gain some experience, credibility and start their track record.
Consolidation of existing insurers
There have been recent rumours surrounding the possible sale of Scottish Widows bulk annuity book to Royal London. Additionally, there have been headlines suggesting that both PIC (Pension Insurance Corporation) and Just are exploring the possibility of a takeover. As I write this, nothing concrete has been announced publicly, but it feels likely that some consolidation of existing insurers may happen this year given the multiple rumours around.
We are excited to see the arrival of new entrants and know that vast amounts of preparation, usually over many years, will have gone into the work behind the scenes to get to launch, often with the guidance of experts in the field.
We predict that there will be at least 2 new entrants launching this year into the bulk annuity insurance market, and that both will have announced a transaction by the end of 2024. We also believe that there will be some consolidation of existing insurers, but that overall, we will end the year with an increased number of insurers in this market.
Increased capacity and more competitive tension can only be good news for those seeking an insurance solution and we keenly await the details of these launches and will watch their progress closely.
Andrea Mendham – Partner, K3 Advisory
