The firm's latest research into the bulk annuity market shows 2013 was dominated by three big players, with one insurer writing half of the total premiums.
Tower Watson's Settlement in Focus showed that in 2013 eight insurers wrote 186 bulk annuity deals worth more than £7.2 billion ($12.17 billion). £3.7 billion ($6.25 billion) was written by one insurer, with two other insurers writing £1.4 billion ($2.37 billion) and £1.3 billion ($2.20 billion) respectively.
Towers Watson advised on over half the £7.2 billion total, having advised on deals ranging from £5 million ($8.45 million) to £1.5 billion ($2.54 billion). The research also shows that bulk annuity deals worth less than £10 million ($16.90 million) outnumbered those over £10 million, indicating that insurers who focus on medical underwriting have the opportunity to significantly increase their share of the total number of deals written, according to the firm.
“The last year has shown a move towards an even greater domination of the market by a few insurers. Rothesay Life’s recent announcement of its planned acquisition of MetLife appears to compound this effect further. Counteracting this, Just Retirement’s and Partnership’s share of the market may increase as medical underwriting takes off, perhaps becoming the norm for smaller schemes," said Sadie Hayes, transaction specialist at Towers Watson.
“With the recent budget announcement on removing the forced annuitization of defined contribution (DC) pots, we expect to see more insurers redirecting capital from their individual annuity business to their bulk annuity business."
There are currently five insurers operating in both the individual annuity and bulk annuity markets, two of which wrote their first bulk annuity deals in 2013, according to Towers Watson.
A larger number of insurers currently operate in the individual annuity market, and with the predicted decline in this business, many are already considering a move into the bulk annuity market.
“Besides those insurers which already operate in both the individual and bulk annuity markets redirecting more capital towards their bulk annuity businesses, we also expect there to be a number of new entrants to the bulk annuity market in the next few years," said Hayes.
"These insurers will need to develop their new business process, administration and the financial systems to write this business. This will help to meet the expected increase in demand from pension schemes for these products.”