Around 30 per cent of buy-in and buyout transactions were run on an exclusive basis in 2022, bypassing the traditional auction process, according to analysis by Hymans Robertson.

For defined benefit (DB) scheme sponsors looking to reduce the risks and costs of running a scheme through buy-in and buyout, the typical route has involved an auction, garnering bids from a number of insurers.

However, according to consultancy firm Hymans Robertson, close to a third of schemes in 2022 chose a selection process, sifting through potential insurers to choose the best fit, then requesting pricing from that one insurer on an exclusive basis.

The process has a number of benefits, said Hymans Robertson risk transfer specialist and head of core transactions, Iain Church: “A traditional market approach doesn’t always deliver a solution that fully accounts for the requirements a scheme might have, and a more tailored transaction structure through an exclusive relationship could help the scheme.”

Specific requirements such as a need for flexibility for illiquid assets, a tailored price lock or particular contractual elements can all lead to more difficult conditions for an auction.

Some insurers may be less inclined to develop tailor-made solutions necessary to meet certain schemes’ characteristics within a competitive bidding framework, said Hymans Robertson, while a deal could be more attractive if offered exclusively.

Indeed, said Church, some insurers are making exclusivity a condition of quoting for a small scheme.

He added: “This isn’t just for small schemes; from analysing reported transactions and talking to insurers, we estimate up to 30 per cent of the buy-in and buyout premiums in 2022 were transacted this way.”

Auctions may see bids pushed up in favour of the sponsor, Church argued that competitive pricing is a crucial part of exclusive deals, too.

“Experienced advisers and professional trustees know what excellent pricing looks like,” said Church.

“Insurers also know if they do not give an excellent price the transaction is unlikely to proceed, and the advisers and trustee will be less likely to select them for an exclusive process in the future.”

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