Prudential Assurance Company Ltd, which is owned by M&G Plc – the parent company of M&G Investments – has publicly floated the idea of becoming involved in the bulk annuities market. This assertion came on a recent call in which the organisation announced its full year results; however, it later denied rumours that the plan to do so was imminent.
The possibly of Prudential Assurance entering the market would bring the total number of participants to nine. It would also position the company alongside the other bulk annuity providers that have long dated liabilities, such as Defined Benefit (DB) pension funds, and rapidly increasing assets under management (AUM) as they complete buy-out transactions.
The other eight bulk annuity insurers currently in the market are Aviva, Canada Life, Just Group, Legal & General, Pension Insurance Corporation, Rothesay, Scottish Widows and Standard Life.
Bulk annuities are insurance policies purchased by a pension scheme with the goal of better securing members’ benefits by removing any longevity, investment, interest rate, and inflation risks that are associated with DB pension schemes, either as an asset of the scheme (a buy-in) or by issuance of individual policies to the members (a buy-out).
“With record demand from UK pension schemes and strong interest from global providers of capital, we think it won't be long before nine buy-in insurers becomes ten.”
According to media reports, the UK bulk annuities market surpassed £50 billion this year. Market experts said it could hit £70 billion in the next few years, with this boom likely to be a significant draw for Prudential Assurance.
Longevity is often the main facet of a bulk annuity, with some expected to last fifty years.
James Mullins, Partner and Head of Risk Transfer Solutions at Hymans Robertson, said that Prudential Assurance was also unlikely to be the only company interested in joining the markets. “With record demand from UK pension schemes and strong interest from global providers of capital, we think it won't be long before nine buy-in insurers becomes ten.”
Path to further investment
When approached for comment, Prudential Assurance refused elaborate on their current plans and insisted that the quoted entrance to the market was merely an idea proposed by their CEO at a briefing. “This is something we said we’re considering at our full-year results, but it’s still early days and there’s nothing further to add at this stage,” said a media spokesperson for the company.
"The market has become much, much larger in the UK and therefore, there is an opportunity for us to play here.”
In March, CEO Andrea Rossi said during an analyst Q&A that any movement into the area would be largely down to potential growth opportunities in the space.
“When I think about growth, I want the growth in our capital-light businesses. So, it is Asset management and Wealth management,” he said in the briefing transcript. “The reason why we are looking at the Heritage business is the market has changed. The market has become much, much larger in the UK and therefore, there is an opportunity for us to play here.”
However, he added that changes would occur in a selective way, to utilise the company’s current strengths with that hope that it “can give what maybe others cannot”.
“[We’re] looking back at what our business combination is,” Rossi said. “For example, if a DB scheme had private assets, well, that is something where we can make a difference.”
Rossi said the company would focus on utilising their strengths in combination – including investment capabilities given the operations and size of the Heritage book balance sheet of the Heritage book – but also potentially the With-Profits fund.
“That gives us an opportunity,” he said. “But we are going to do [it] selectively. The real growth opportunities for us are in asset management and in wealth management.”
Fund Operator - news round-up 19/5/23
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