Insurance capacity for U.K. pension funds wishing to transfer pension risk is set to increase to more than £15 billion ($22.5 billion) in 2016 as new entrants come into the marketplace and the start of Solvency II gives greater certainty, said a report released Wednesday by Lane Clark & Peacock.
The volume of U.K. pension plan buy-ins and buyouts has already exceeded £10 billion in 2015, according to the report, “LCP Pensions De-risking 2015: Buy-ins, Buy-outs and Longevity Swaps.”
“The record level of competition and extra insurer capacity will be beneficial for pensioner buy-in pricing next year,” said Charlie Finch, a partner in LCP's derisking practice and a co-author of the report, in a statement.
According to the report, there are three drivers in the growth in capacity for pension buy-ins and buyouts in the U.K. It says the entrance of new capacity means that there is now the highest-ever number — nine — of insurers active in this area, and other insurers reportedly are considering entry.
Second, the clarity about insurers' capital reserves brought by the advent of Solvency II, the Europe-wide risk-based capital regulatory regime that comes into force in January, means that insurers now have a greater risk appetite, the report said.
And lastly, investors will have greater certainty about insurers' financial position, because of Solvency II, and this will give insurers easier access to fresh capital to write new business, the report notes.
This year was a “challenging year for insurers as they got to grips with Solvency II, but buy-in and buyout volumes have still hit £10 billion,” Mr. Finch said.
“The light is now at the end of the tunnel, and we forecast buy-in and buyout capacity will grow to over £15 billion in 2016,” he added.
The report is available on LCP's website.