LCP is predicting a flurry of activity in the buy-in and buy-out market over the next 12 months as defined benefit schemes look to accelerate their de-risking plans. Early 2022 has seen a big jump in funding levels on full buy-in/out for many schemes – in some cases over 5%. As a result, many schemes are seeking to reduce investment risk, extend existing buy-ins or explore full scheme insurance. ​  

According to LCP, the key trends driving increased affordability are: 

• Improved insurer pricing, particularly for deferred pensioners  
• A reduction in pricing as reinsurers reflect the impact of the pandemic on longevity trends 
• Rising interest rates and higher inflation improving funding​ positions 
• Intense competition between insurers as they vie for business 

LCP predicts that turbulence in global markets as a result of geopolitical events could create a period of favourable insurer pricing – not dissimilar to the brief period in the wake of the initial covid-19 pandemic in early 2020. This is also helped by insurer competition being at its most intense in a decade, with five insurers vying for top spot last year - each securing a market share of over 10% in 2021.  This is up from four insurers in 2020 and three in 2019.  

LCP believes that the upcoming Solvency II reforms may help to contain upward pressure on pricing due to the increased demand. They expect key proposed changes (wider asset eligibility and less reliance on longevity reinsurance) to be helpful for insurers’ capacity to write increased volumes at current pricing levels. This may be vital if market volumes do grow rapidly as projected. 

Charlie Finch, Partner at LCP, commented: “Many schemes have seen de-risking opportunities emerge over 2022 on the back of a big jump in buy-out funding levels.  As schemes find themselves ahead on their journey plans, it is important to review the preparatory steps they have planned and whether work should be accelerated.  Careful preparation of benefits and data is particularly key to obtaining favourable terms and pricing. 

"The first half of 2022 has seen relatively modest volumes, but this could prove to be the calm before the storm with a flurry of activity over the second half of the year.  Improved affordability is likely to further accelerate activity into 2023.  It’s vital that schemes have planned out their strategy carefully as they look ahead to when they will approach the insurance market.”