'Red hot' year expected for insurance market as DB surplus grows

Industry experts have predicted increased demand in the insurance market in 2023, after the Pension Protection Fund’s (PPF) 7800 Index revealed that the aggregate surplus of defined benefit (DB) pension schemes rose to £376.7bn at the end of December 2022 .

According to the index, the funding ratio also increased from 133.7 per cent at the end of November 2022 to 136.5 per cent in December 2022, based on total assets of £1,409.5bn and total liabilities of £1,032.8bn.

This also marks a year-on-year improvement, with an aggregate surplus of £129.3bn previously recorded in December 2021, alongside a funding ratio of 107.7 per cent.

PPF chief finance officer and chief actuary, Lisa McCrory, explained that the primary driver of the increase in estimated surplus was the rise in government bond yields through December, which meant that the estimated value of liabilities fell by £68.5bn.

“Bond yields rose in December as central banks, particularly in the US and Eurozone, re-iterated that policy rates are likely to remain at higher levels for some time," she explained.

“In addition, the Bank of England sold £15bn of the holdings that they had bought in the market intervention in September/October, representing a material increase in supply.”

Additionally, the index revealed that the number of schemes in deficit fell from 746 at the end of November to 686 in December 2022, while the deficit of the schemes in deficit fell from £5.8bn at the end of November to £4.5bn at the end of December.

The total surplus of schemes in surplus also improved, increasing from £377.3bn to £381.2bn at the end of December.

Broadstone senior actuarial director, Jaime Norman, highlighted the latest figures as demonstration of the "huge gains" made by pension schemes in 2022, noting that "many thousands more schemes will be closer to the end game than last year or than they could possibly have planned for at this point".

In light of this, Norman suggested that 2023 looks set to be a "red-hot year for the insurance market", predicting significant transaction volumes throughout the year.

“The challenge for schemes, particular those at the smaller end of the market, is that competition for attracting and engaging insurers will be intense," Norman continued.

"Trustees and employers must ensure that their preparations are in excellent condition to stand a chance of capitalising on the improvements in funding and securing the benefits of their members for the long-term.”

Buck head of retirement consulting, Vishal Makkar, also suggested that "this is a clear opportunity to take stock, think strategically, and prepare for the year ahead" for those schemes starting the year in surplus, agreeing that 2023 "already looks set to be a busy year for the buyout market".

He continued: “The new year also presents an opportunity for trustees to re-evaluate the wider economic picture. Inflation in particular will remain a major focus this year, after the CPI ended 2022 at 10.7 per cent.

“There are also concerns about growth after the latest figures from the ONS showed that the UK’s GDP fell by 0.3 per cent in the three months to October 2022.

“With new GDP figures due to be released later this month and a Bank of England base rate decision coming at the start of February, schemes need to stay alert to how the economic outlook could affect funding, as well as any impact on scheme members and sponsors.

“This economic doom and gloom may well also push schemes to de-risk and 2023 already looks set to be a busy year for the buyout market, as schemes seek to capitalise on the gains they made last year.

“As the buyout market becomes even more competitive, good preparation will be the key to success and schemes that have worked hard on their data administration will be at an advantage in the year ahead. Making serious strides in areas such as GMP equalisation and pensions dashboard readiness, will go a long way to reassuring potential insurers.

“Data preparation should be a priority for every DB scheme this year. For any scheme that wants to reach buyout, inaction is simply not an option.”

    Share Story:

Recent Stories

Understanding data
Laura Blows discusses the importance of understanding data for trustee administration projects with ITM sales director, Mark Adamson

Are current roads into retirement delivering member value?
Laura Blows explores HSBC Master Trust’s recent report, Converting pension pots into incomes, with HSBC Retirement Services CEO, Alison Hatcher.

Savings and finance at retirement
Laura Blows is joined by Claire Felgate, Head of Global Consultant Relations, UK, at BlackRock, to discuss savings and finance at retirement. Please click here for an edited write-up of the video

Pension portfolios – the role of asset-backed securities
Laura Blows is joined by Royal London Asset Management (RLAM) head of sterling credit research, Martin Foden, and its Senior Fund Manager, Shalin Shah to discuss the role of asset-backed securities (ABS) within pension fund portfolios
Incorporating ESG into fixed income
Laura Blows is joined by TCW head of fixed income ESG, Jamie Franco, to discuss incorporating environmental, social and governance (ESG) strategies into fixed income portfolios