A rapid increase in medically-underwritten bulk annuities will lead the way for a future convergence between standard and medically-underwritten approaches, according to the Pensions Institute.
A report from the Cass Business School-backed think tank said 60 transactions worth more than £1bn have been transacted since 2013, while medically-underwritten deals grew from 3 per cent the same year to more than 15 per cent by mid-2015.
The report predicts the bulk annuity market, with its estimated £2trn of pension liabilities, will see a convergence in pricing approaches.
It suggests as the sector develops, those currently operating in the medically-underwritten space will begin to compete for more standard bulk annuity deals, while “traditional” insurers will develop the use of some health and medical conditions to add to existing underwriting processes.
While the use of health and medical data in the retail space is long established, according to the report it is new in the bulk annuity market, having first been used in any significant way in 2013.
Since then, the report stated deal processes have become more standardised, streamlined and responsive as parties become more experienced, leading to deals being transacted quicker, enabling prepared schemes to take advantage of market opportunities.
Professor David Blake, director of the Pensions Institute and one of the authors of the report, explained there is significant scope for further expansion in the space, with a likely convergence between standard and medically-underwritten approaches in the future.
Costas Yiasoumi, director of defined benefit solutions at Partnership, said he was pleased to see the industry has moved from being an approach for early movers, to one that is increasingly being viewed as the mainstream way to provide better value outcomes to pension schemes.
Dominic Grimley, bulk annuity lead for risk settlement at UK Risk Settlement, said: “Our experience has been that after a couple of years of this market development, there has been a huge interest over 2015 and going into this year.
“We obtained pricing for several transactions in the sector last year, better any since 2008. It has been quite dramatic.”
James Mullins, head of risk transfer solutions at Hymans Robertson, agreed with the conclusions of the report.
He said: “From just two years ago, buy-ins have converted £2bn worth of pensions scheme liabilities; this is significant growth.
“We have not seen the final quarter numbers, but have been involved in a lot of activity and anticipate it will be £1bn in the fourth quarter alone. Growth will continue and other insurers will develop their proposition to incorporate the extra information.”
