We expect recent and future new entrants to the market to help deliver this, while existing BPA providers are increasing their capacity, in terms of both capital and human resources. Developments in technology and more efficient processes from advisers and insurers will also support this.
Realistically, however, the headline transaction volume every year is very dependent on how many large (£1bn+) deals complete. Even with increased industry and regulatory focus on alternatives to insurance, we anticipate a strong pipeline of large schemes doing bulk annuity deals to continue. Insurers quoting for these schemes devote a lot of time and resources to doing so.
According to The Purple Book 2023 published by the Pension Protection Fund (PPF), there are over 4,000 PPF-eligible schemes with fewer than 1,000 members (and almost 1,900 with fewer than 100 members), though these make up less than 10% of total assets across all eligible schemes.
Does a minority of large schemes looking to insure mean many small and medium-sized schemes will get squeezed out?
Recent experience
From time to time, K3 has heard from trustees that have been advised that their small scheme might not be able to get any insurer to quote. Despite competing pressures in a quickly growing market, we still believe it is possible for any scheme to get at least one quote and to transact. We are proud to have advised over 70 schemes on sub-£100m deals since 2019, with more than 40 of these being sub-£10m cases, the smallest being only £0.6m.
At the very small end of the market, exclusivity with an insurer is sometimes the only option, but this should not be taken as a certainty. We have run recent processes for sub-£10m schemes with multiple insurers bidding. Several new entrant insurers are also looking at serving smaller schemes and we have a c£40m case at market where we expect to have quotations from six insurers.
Future developments
Several insurers have recently developed or updated their propositions for “small” schemes (which typically means sub-£100m now), with a common focus on a streamlined quotation process based around standardised formats for providing membership data and benefit information.
There are now four established insurers with such propositions. While each are based on standardised information formats and have a similar overall focus on streamlining their quotation process, there are some differences between each. For example, only one of the four offers indicative quotations, the others being limited to schemes ready to seek binding quotations. Accordingly, those platforms are more complex and time consuming for schemes to populate. Schemes using these propositions also need to consider the insurers’ different preferences on quoting exclusively and on scheme size, as they are not all open to schemes of every size at present.
This is not an exhaustive list of insurers who will currently quote for small schemes, though others who do are typically very selective. We anticipate some new entrants will have a sustained presence at the small end of the market and we are also aware that at least one other existing provider is considering expanding its offering to start quoting for smaller schemes.
While no adviser can guarantee which insurer will offer the best pricing for any one scheme and an exclusive process might still be the best or only option for some schemes, the continued developments of these streamlined processes are a good sign for trustees and sponsors of smaller schemes, as they provide greater options, more competitive pricing and potentially a quicker and more efficient route to implementing a transaction as well.
Although the insurers quoting on the largest deals are typically less active at the small end of the market (and some are not active there at all), it is also the case that the insurers who lose out on the bidding for any one case might then look to divert capital and resources to other, smaller deals, so there can often be opportunities to take advantage of attractive pricing in those circumstances.
As the market-leading adviser for small schemes, K3 remains bullish on how the BPA market is functioning for those schemes, and we think the situation is only likely to improve with the wave of new entrants.
Thomas Crawshaw - Senior Actuarial Consultant at K3 Advisory
