UK bulk purchase annuity (BPA) insurers have been urged by Aon to focus on key industry priorities in 2025 to ensure the continued delivery of “attractive and robust” insurance solutions.

Aon senior partner and head of risk settlement, Martin Bird, wrote a letter to the CEOs of UK BPA insurers, setting out six priority areas in relation to supporting clients who have either already executed bulk annuity transactions or are contemplating insurance transactions in the future.

“The bulk annuity market has developed considerably over recent years with increased transaction volumes, significant innovation to address the complexities of the UK defined benefit (DB) pension market, and increasingly bespoke arrangements to support investment transitions to insurance providers,” Bird said.

“Set in the broader context of endgame planning with a focus on delivering security and a great service for scheme members for decades to come. It is through this
lens which we set out our six priorities.”

The first priority Bird set out was for insurers to embrace continued improvements in member experience, stating that there have been “positive” developments in recent years, for example, insurers are now able to accommodate a wider range of member options in the at retirement support available to members.

He added that flexibility is becoming more commonplace in the DB landscape and is an increasingly important decision-making factor when schemes select an insurance provider.

Therefore, he said it would be equally important that insurer operational capacity to keep pace with the growth of business volumes in supporting the broader transition from buy-in to buyout and in ensuring a "seamless" experience for members.

The second priority was a continued focus on innovation regarding illiquid assets, particularly for schemes that have reached their endgame sooner than anticipated and are unable to transition to insurance in a cost-effective way due to the costs and haircuts of unwinding complex illiquid asset portfolios.

Bird suggested that these delays often leave schemes exposed to market volatility and said Aon welcomes industry discussion on how the transition could be improved and on actions that could reduce risk and deliver better value.

Bird also advocated for transparency relating to the use of funded reinsurance, acknowledging the Prudential Regulatory Authority’s (PRA) letter to insurers and the “significant” focus that this topic has received.

He said that despite Aon recognising that funded reinsurance can be a useful tool, it supported the PRA’s scrutiny to ensure appropriate controls are in place to maintain policyholder protection.

In addition to this, Aon called for increased public disclosure in this area, as it views an improved understanding of the benefits and risks of this area as beneficial for market confidence in the insurance regime.

The letter also suggested that greater transparency regarding progress on environmental, social and governance (ESG) matters was a priority as Bird said that Aon’s clients are keen to understand insurer policies on ESG.

He explained that Aon would welcome greater transparency, not just on targets and ambitions, but also on actual progress and the tangible actions undertaken to drive better outcomes.

Bird also said that planning for the future should be seen as a priority, with Aon predicting that market volumes will grow at an "accelerated" pace over the coming years.

In particular, he stated that Aon data highlighted that buyout remained the ultimate destination for the majority of schemes over time, despite a “significant” proportion of schemes looking to run on in the short term.

Given this, Bird said Aon encourages insurers to engage in conversations about insurance versus run-on, including revisions to surplus refund rules, and to work with the advisory community to develop solutions that help schemes with the transition from a run-on path into insurance, and at the right time.

The final priority Bird set out in his letter was for insurers to present with greater clarity the actions and investments that are being undertaken to support the government’s focus on productive growth.

He said that Aon believed that greater engagement on this topic could improve confidence in the insurance sector, as pension scheme decision-makers think about the future.

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