Smaller pension funds are struggling to get the attention of insurers in today's lively U.K. pension risk transfer market.
With more and more sponsoring employers suddenly finding themselves with fully funded pension plans on their books and in a position to offload that risk, insurers looking to underwrite bulk annuity business have their pick of a very big bunch.
But for smaller funds, "in some respects they're getting crowded out of the market," said Ian Aley, London-based head of transactions at Willis Towers Watson PLC.
"The market is trying quite hard to make space for those smaller schemes — if you make the whole process a lot easier for all parties, all parties are more willing to engage," Mr. Aley said. That means it's more important than ever for smaller pension funds to make sure they're truly ready to move to a pension risk transfer deal, with clean data and terms agreed to that are acceptable for both the pension fund and insurers.
Getting to that point prior to approaching a transaction takes cost and resources out of the process, Mr. Aley said. And if a pension fund prepares its data in a form that can plug straight into the insurers' models, that's a simpler proposition, more cost effective and less resource-intensive for the insurance company underwriting the deal.
Mike Edwards, Leeds, England-based partner on Aon PLC's risk settlement team, said that of the eight active insurers in the U.K. pension risk transfer market, five operate in the smaller pension funds market — which he defined as those with up to £100 million ($122 million) in assets.
However, there's still competition among those pension funds, just like their larger counterparts, as a lot of those smaller funds have seen improved funding levels and want to go to the insurance market.
"Part of the challenge there is how do you engage the insurers to bid on your transactions," Mr. Edwards said. He agreed that streamlining around the transaction process, with prenegotiated contracts with all the insurers, for example, is one option. "So the heavy lifting of negotiating has already been done — that's positive for schemes and positive for insurers (and it) removes some of the execution risk around this," he said.
