Pension scheme trustees must ask the "right questions" about financial strength when selecting an insurer for a buy-in transaction, LCP has said, emphasising that choosing the right insurer is more than a box-ticking exercise.

The firm argued that it is "vital" that defined benefit (DB) pension trustees are fully informed when making what will be one of the most significant decisions that they will ever make for their scheme and its members.

It also pointed out that insurers operate within a "complex" framework, and the UK regulatory regime does not guarantee zero failures.

Given this, it highlighted five key issues that pension scheme trustees should consider when assessing an insurer's financial strength.

In particular, the firm encouraged trustees to ask insurers how robust their solvency reserves are, how risk sensitivities are managed, and what protections the Solvency UK framework offers.

LCP also urged trustees to question what an insurer's ownership structure means for its financial strategy and resilience, as the ownership structure of an insurer—whether public, private, or mutual—can affect how it makes decisions

In addition to this, the firm encouraged trustees to look at financial benchmarking of key metrics, to help put their potential insurer counterparty into context.

In particular, it said that helpful indicators for trustees to consider include solvency ratios, investment portfolio composition, and credit ratings.

LCP partner, Francesca Bailey, stated: “Choosing the right insurer is not just a tick box exercise; it’s about securing the long-term future of your scheme and safeguarding member benefits.

"Insurers operate within a complex framework, and the UK regulatory regime does not guarantee zero failures.

"By asking the right questions from the start, trustees and sponsors will be better prepared to navigate the complexities of the buy-in market and confidently make a decision that is, for many, the most significant they will ever face.”

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