Uncertainty in the annuity market driving M&A

Following the annuity reforms in the UK driven by the recent budget announcements, the annuity market is changing. Policyholders now have much greater freedom over their choices at retirement (which is likely to increase further still with the proposed secondary market for existing annuitants).  This has led to a significant change in consumer behaviour and subsequent uncertainty about the volume of future annuity sales.

 

Together with this change in consumer behaviour, the capital requirements of holding annuity portfolios continues to be a challenge for insurers. This is because of the uncertainty arising from Solvency II implementation and whether firms will receive approval for matching adjustment and equity release solutions which are often used to back annuity liabilities.

 

This has led to insurers disposing of non-core annuity portfolios. Recent deals have included  Equitable Life selling a portfolio of annuities to Canada Life, Zurich UK selling a portfolio to Rothesay Life and much of the Friends Life business recently sold to Aviva being largely retirement and annuity focussed.

 

Personally I think that for some time we have been waiting for consolidation in the annuity market to take place driven by factors such as operational scale efficiencies, capital diversification and improvement in customer reach. The need for this has been widely accepted but, similar to other markets, it often requires a trigger to facilitate action. We are now starting to see an uptick in mergers and acquisitions (M&A) activity and it looks set to continue for a while.

 

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What do the annuity reforms mean for you and your organisation? To what extent are you looking to generate efficiencies of scale or diversify your capital? Share your thoughts below or schedule a meeting to discuss your thoughts in confidence.

James Tye | Insurance Deals Partner
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