A new entrant to the UK bulk annuity market is expected by the end of the year, taking the market to 11 insurers, LCP has predicted.

This follows M&G, Royal London, and Utmost’s entrance into the market in the past nine months following a period of stability.

LCP’s pension risk transfer (PRT) market update said that the group expects the new entrants to transact “relatively modest” figures as they expand their operations and that they have the potential to add “material capacity” to the market over time.

However, the firm noted that the new entrant will face the same supply-side constraints the existing insurers have and will be competing for the same experienced personnel, reinsurance capacity, post-transaction resources, and attractive assets with which to back their pricing.

Last year, LCP projected £400bn to £600bn of buy-in and buyout transactions over the next decade, with the range reflecting different scenarios for the number of schemes choosing to insure.

The firm said there are early signs that some schemes are increasing their focus on wider endgame options.

Meanwhile, LCP’s annual defined benefit (DB) pension scheme survey found an increasing number of schemes, across all size brackets under £5bn, were targeting run-on or self-sufficiency, at least over the shorter term compared to full insurance.

The firm stated that this was a trend they expect to continue as the next government implements the Mansion House reforms giving pension schemes a wider range of endgame options.

Looking ahead to the risk transfer activity over 2024, the firm has said there has been less of a “frenetic” start to the year after 2023 finished with a “flurry” of activity.

However, LCP said that insurers are reporting record pipelines with 20 or more £1bn+ transactions currently in the market or expected, compared to the 12 deals completed last year and the nine in 2019.

LCP noted that 2024 setting new records for bulk annuity transaction volumes will depend “crucially” on how many £1bn+ and £5bn+ deals come to the market and successfully transact or whether they look at alternative options.

LCP principal, Ruth Ward, said the PRT market is experiencing “rapid” change and said that the market can handle large numbers of big buy-in/out deals, even if they are in a single year as demonstrated in 2019 and 2023.

Ward said LCP expects the total number of insurers in the market to reach a “record” 11 by the end of the year following a “surge” in new entrants.

However, she explained: “Demand from large schemes continues to be strong but inevitably £1bn+ transactions are lumpy and that is likely to mean continued volatility in buy-in/out volumes.”

LCP partner, Charlie Finch, added: “There has never been a wider and more positive range of options for schemes choosing their endgame.

“The upcoming general election creates uncertainty, but we only expect the endgame options to grow.

“As well as a booming buy-in/out market, DB superfund transfers are now a viable solution which we expect to see being used in a wider range of situations.

“The DWP consultation on DB options should also bring positive news giving greater flexibility for schemes, and so increasing the attractiveness of running-on for a period for some schemes.”

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