Warnings that a sharp decline in interest rates will lead to a potential fall in UK bulk annuity volumes are overdone, suggests UBS, which expects Legal & General to be a major beneficiary of the continuing trend.
UK bulk annuity volumes hit historic levels in 2023 at £49.1bn according to actuarial consultancy LCP.
Over 2023 Rothesay took the largest share of the market (£12.7bn at a 26% share), followed by L&G (£12bn at a 24% market share) and then PIC ( £6.5bn at a 14% market share).
These high volumes were driven by the rise in UK interest rates, which led to a significant increase in funding positions of UK Defined Benefit pension schemes.
Moody's has warned that falling interest rates will have the opposite effect, at least partially.
We expect a key constraint for the industry achieving similar or higher volumes than 2023 over the next 5 years (expectations of £250bn cumulative) will be the ability for insurers to source high-yielding assets.
“Overall, we expect bulk annuity volumes to continue to track at £50bn pa over the next 5 years, with L&G within our coverage likely to take the largest share of the market at c.25%.”