Pru and L&G to increase bulk annuity business in 2014

Prudential and Legal & General are planning to increase their emphasis on bulk annuities this year, FTAdviser understands.

This morning the trustee of the ICI Pension Fund entered into a £3.6bn agreement with Prudential and L&G which would mean the two providers would ensure members get an income in retirement.

Of that contract, L&G won £3bn while Prudential won £600m.

In a speech this morning (26 March), Nigel Wilson, L&G group chief executive, predicted the individual annuities market would shrink by three quarters in the next year or so following the changes announced by chancellor George Osborne in this year’s Budget.

Specifically, he predicted the individual annuity market to drop from its current value of £11.9bn to £2.8bn worth of premiums.

Mr Wilson said: “Of course annuities will remain right for many people: and with the continued secular expansion of the bulks market, we are extremely confident that we will write more annuity business in 2014 than in 2013... possibly substantially more.”

A spokesperson for L&G told FTAdviser that the company’s retirement business is broadly split across four areas: longevity insurance, individual annuities, bulk annuities and international business.

He went on to say that as the market serving one strand shrinks, it is only natural that L&G increases its emphasis on the other three areas.

A spokesperson for Prudential echoed this approach. He said there has been “more interest from trustees of schemes who want to de-risk the investments they hold on their balance sheets.

“The schemes are in a better position to purchase these policies from providers such as ourselves.

“We are confident that the level of activity across the market is going to increase and we... would expect to be at the forefront of activity in this market in 2014.”

Ian Aley, senior consultant at Towers Watson and adviser to AkzoNobel - the sponsor of the ICI Pension Fund - said: “We haven’t reached the end of the first quarter of the year and 2014 is already the third largest year to date in this market.

“You could easily see total transaction volumes of £30bn by the end of the year if conditions remain favourable.”