Aon Hewitt has commented on the implications for the bulk annuity market of Rothesay Life's announced purchase of MetLife Assurance Limited's £3bn book of annuity business.
Dominic Grimley, principal consultant in Aon Hewitt's Risk Settlement Group, said:
"We believe that this resolution over the ownership of the MetLife bulk annuity company, which has been the subject of speculation for a year, is a very positive outcome for its policyholders. The reassurance of Rothesay Life's size, reputation and market commitment will give comfort. We expect that Rothesay Life will already be considering how the MetLife assets are invested. The administration transition will also be helped by Rothesay Life's existing relationship with JLT, benefit administrators for MetLife and for the £3bn Paternoster backbook that Rothesay Life acquired in 2011.
"The bulk annuity market participants have changed regularly since 2006, and the implications of this latest change are not yet completely clear. Rothesay Life will continue to seek larger deals over £100m, but the acquisition gives them the opportunity to expand their target market downwards. MetLife have continued to quote for new business, but with understandably less traction while their future was undecided. So, in this case, the loss of a provider may in practice provide another viable option for schemes that could not previously obtain a quotation from Rothesay Life.
"For the smallest schemes though, a Rothesay/MetLife option is probably less likely to be available, so this may increase their reliance on using the new market in medically underwritten quotations to obtain competitive pricing pressure for their business."
Dominic Grimley continued:
"If you consider the large number of market entrants over the 2006 to 2008 period when bulk annuities took off, PIC and Rothesay Life are left as the clear survivor. They have established size, with the liabilities, and in some cases the operations, of the Paternoster, Synesis, ALICO, Lucida and MetLife businesses all finding new homes. In all these cases, the stability of the insurance model has been demonstrated, with policyholders experiencing change by getting a new bigger counterparty but seeing no disruption to their benefits.
"While we believe there is sufficient capacity in the market to cope with existing demand, as more closed schemes make firm plans for de-risking, it's conceivable that providers will choose the auctions in which they participate more selectively and schemes with less clear processes for achieving a transaction may miss out. All this continues to emphasise the vital importance of clear planning for all transactions."
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