BPA market capacity concerns dispelled as consultants reveal 100% success rate

Written by Sophie Smith

19/06/2024

Despite concerns over potential capacity constraints in the bulk purchase annuity (BPA) market, the majority of consultants in the small scheme space have seen successful transaction rates with good value for money, research from DLA Piper has found.

The firm said that while it isn’t entirely clear where speculation around a struggling market originates, the results from its survey are positive, revealing that the majority of consultants have experienced a 100% success rate for small schemes across all sizes progressing from receipt of an initial quote to transaction close.

"The results are clear. Insurers are welcoming new schemes, working hard to create streamlined propositions, and will ensure that no small scheme is left behind," DLA Piper partner and head of pensions, Amrit McLean, said.

Indeed, the research showed that the flow of small scheme transactions undertaken in the market through 2023 remained "steady", with the eight consultants surveyed completing an aggregate of 138 transactions for schemes under £250m in the year.

The market for schemes under £25m was particularly strong, according to DLA Piper, with a total of 63 transactions completed and an average of 7.8 transactions for each consultant

However, scheme size still plays a role, as the survey found that schemes at around £100-250m had the lowest success rates, with three out of the eight consultants suggesting that success rates for schemes in this size range were 67%, 80% and 80%, respectively.

Reasons cited as contributing to the failure of these schemes to successfully transact include affordability and value for money, impacting around 15% of cases, as well as issues with illiquid assets and market movements causing deterioration in scheme funding position compared to insurer pricing.

Industry experts were also divided about whether it is getting harder for small schemes to receive quotes compared to previous years, as 62% of respondents believe the ability has remained the same, while 34% this it has been marginally more difficult in 2024, and 3% think it has been marginally easier.

However, when asked whether insurers provide adequate support for small schemes, consultants were generally positive, although respondents suggested that greater consistency is needed between insurers in offering opportunities and support for small schemes.

Despite mixed responses about the current insurer market, the majority (87%) think that more capacity is expected from insurers in 2024 in providing quotes to small schemes, with all consultants surveyed suggesting that more capacity will be given for schemes ranging between £50– 100m.

New insurers in the market are also expected to help, as the research found that general consensus is that new entrants into the market will open up capacity and generate even more opportunities for competitive pricing.

However, new insurers in the market will be expected to have limited pricing capacity and require exclusive processes while they grow, with one respondent suggesting that appetite will shift to larger schemes once these new entrants are established in the market

Given the busy market, DLA Piper stressed the need for schemes to ensure they are "thoroughly prepared", understand affordability and are flexible in dealings to succeed in the market.

It also argued that advisor engagement from an early stage is key, as well as pragmatism on the part of all parties.

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