Overall, the detailed proposals reflect the headline points Mr Glen’s speech had trailed. A summary of these key areas is set out below.

Therefore, while the proposed reforms are significant for the insurance industry, we continue to believe that the overall impact will tend towards behavioural changes by bulk annuity insurers. Some of these changes might modestly improve security for policyholders (i.e. defined benefit pension scheme trustees and, ultimately, scheme members), rather than lead to any seismic shift in annuity pricing.

Especially while market conditions are favourable for so many schemes, those that can afford to buy out (even where an employer contribution is required) should proceed rather than delaying such a transaction in the hope that the reform will facilitate lower bulk annuity prices.

There are four central themes to the proposed reforms:

As expected, a substantial reduction is proposed to the “risk margin” (the difference between an insurer’s best estimate of its liabilities and the market value of its liabilities, i.e. one layer of its required capital) of around 60-70% for long-term life insurers.

Behavioural change: We think this will lead to lower levels of longevity reinsurance by bulk annuity insurers, who will use reinsurance as a risk management tool rather than the current widespread approach of reinsuring as a tool to reduce the risk margin.

Bulk annuity pricing impact: This will be minimal given bulk annuity insurers already have more modest risk margins than other life insurers, due to their practice of reinsuring longevity risk.

The “Matching Adjustment” is the spread above risk-free rates in the discount rate that insurers are permitted to use for valuing liabilities which are matched by certain eligible long-term assets.

The “fundamental spread” is the allowance for credit and other residual risks retained by insurers which are excluded from the Matching Adjustment.

Technical changes are proposed as to how insurers assess the fundamental spread, as the regulatory view is that the current methodology leads to insurers underestimating this risk.

Behavioural change: This might alter insurers’ investment mix and lead to greater diversification of assets.

Bulk annuity pricing impact: Although the impact will vary from insurer to insurer, we again predict changes to pricing will be broadly neutral.

The Government is keen to promote and allow more investment by insurance companies in long-term assets. Together with reform to the fundamental spread, the intention is to permit a wider variety of assets to be included in Matching Adjustment portfolios.

Behavioural change: We expect this will result in a wider range of assets being used to back annuity books. Of particular interest to pension schemes is the potential for this to lead to insurers being more flexible in accepting in-specie asset transfers in bulk annuity transactions, although we still expect any new flexibility to be limited to larger schemes holding assets directly rather than via pooled funds.

Bulk annuity pricing impact: Together with the proposed changes to the fundamental spread, we believe the impact will be broadly neutral.

Finally, the Government is seeking a major reduction in the regulations which make up the current administrative burden for insurers. This includes proposed reforms to the requirements of internal model standards and simplified reporting requirements.

Behavioural change: We don’t expect any material change to how insurers carry out their regulatory duties.

Bulk annuity pricing impact: Clearly, the changes might reduce insurers’ internal costs, but we think the impact will be marginal. In any case, insurers’ expenses usually make up only a small fraction of a bulk annuity premium.

The proposed reforms are not insignificant, but when considering the implications for bulk annuity insurers especially, we believe pension scheme trustees and sponsors should not delay their current end game plans in the anticipation of future substantial changes to insurer pricing (or, viewed from another angle, to policyholder security).

We think the overall pricing impact will be modest (and to some extent is already baked into current pricing) and implementation of the reforms is still many months or years away, so the focus should remain on seizing good opportunities to de-risk as soon as they arise.