Insurers must act with greater urgency to innovate and differentiate themselves in the increasingly competitive, transparent, and customer-driven bulk purchase annuity (BPA) market, XPS Group has said.

Despite a buoyant market, XPS's analysis showed that growth has slowed after two years of “record” pension risk transfer activity, with the UK BPA market entering 2025 at a more moderate pace.

Total transaction volumes in the first half of 2025 are estimated at £10-15bn, below initial expectations, and full-year volumes are projected around £40-45bn, down from recent £50bn annual peaks.

Despite lower headline volumes, XPS found that, in the first half of 2025, over 150 buy-in and buyout transactions closed mainly at the small and mid-sized end of the market, reflecting increased insurer capacity targeting smaller schemes.

This is in line with broader industry analysis, which suggested that while overall premium volumes are expected to fall in the first half of 2025, the number of transactions is expected to increase.

This trend may be partly due to the fact that trustees, emboldened by stronger funding positions and current gilt yields, are increasingly exploring run-on as a viable alternative to buyout, which XPS said is likely to compress large-scale deal volumes going forward.

It also pointed out that the growing number of insurers in the market has led to heightened competition, with XPS reporting an increase in the average number of bidders per transaction in 2025, reflecting intensified competition for mid-market schemes.

Given the increased competition in the market by new insurer entrants, XPS said that insurers are facing increased pressure to stand out through innovative deal structures, superior member service, and operational efficiency.

XPS therefore urged insurers to innovate in product and investment design and consider factors beyond price alone, such as offering flexibility on terms and tailored post-buyout services.

The group also noted an increase in regulatory reform around productive finance with the Financial Services Growth and Competitiveness Strategy and the Solvency II reforms, which it suggested have given insurers greater flexibility to invest in illiquid and innovative asset classes by relaxing certain matching adjustment and risk margin rules.

However, XPS encouraged insurers not just to comply but engage deeply with regulatory reform to shape how new rules such as Solvency UK and the Financial Conduct Authority’s (FCA) consumer duty can support sustainable business growth and solvency integrity.

It also called on insurers to use consumer duty as a catalyst to modernise their offerings and customer engagement, including making “tough” decisions about legacy products.

Environmental, social and governance (ESG) was highlighted by the group as an area where the pace of regulatory reform has not slowed, and has broadened into areas such as operational resilience, ESG delivery, and culture.

In particular, XPS pointed out an increased focus on the UK’s net zero objectives, with the government launching a consultation on proposed requirements for all UK insurers to publish Paris-aligned transition plans.

The group emphasised the importance for insurers to demonstrate ESG progress credibly, which it said can be done through transparency, accountability, and tangible delivery on climate and social commitments.

Additionally, the group identified that insurers’ approach to digital transformation is moving from experimentation to execution, rapidly raising standards for automation, analytics, and real-time engagement across the industry.

Given these advancements, XPS suggested insurers should embed technology and data at scale, with initiatives that demonstrate efficiency gains, better customer outcomes, and improved risk management.

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