Risk Transfer TV - XPS in conversation with Tom Seecharan from Rothesay

Jamie Hunter: Hi and welcome to another episode of Risk Transfer TV. I'm Jamie Hunter, part of the risk transfer team at XPS. And today I'm joined by Tom Seecharan of Rothesay. Tom, welcome.

One question we would like to ask today is, from our experience, Rothesay appear to price deferred and pensioner members very similarly, whilst in some cases other insurers might add a premium for deferred pricing. Why is this?

Tom Seecharan: Thank you Jamie, for having me. We do tend to find that Rothesay compete quite well when there's lots of deferred liabilities involved. We obviously don't know exactly what other people are doing. One thing that could be making a difference is we don't really tend to see a big difference in life expectancy terms between a 60-year-old who's chosen to retire and a 60-year-old that hasn't retired. Other things that could be making a difference; asset strategy could be at play. Also, the particulars of different insurance companies' capital models that are agreed with the PRA. Member options could be making a difference and different insurance companies could be making different allowances for members to do things like commute pension at retirement or take transfer values before retirement. And then finally reinsurance, we've done lots of deferred business now and we've reinsured a lot of it. So there is lots more capacity there, which should help everybody, but also the track record helps us.

Jamie: For larger schemes, it's getting harder to buy sufficient standalone indemnity insurance as the insurers place more restrictions on the amount and terms of cover. Are you seeing more demand for all risk cover as part of the bulk annuity transaction?

Tom: We're actually hearing the same thing from schemes that they're struggling to get the same kind of runoff cover that they used to, particularly where there's independent professional trustees involved. For us, we're not necessarily seeing that manifest itself as an increase in demand for residual risks cover. It's still really common for schemes to request that above 300 million and less common below 300 million. But the nature of the conversation has evolved in three main areas. We're seeing, number one, more requests from schemes for residual risks features on pension and buy-ins which didn't used to happen. So schemes are asking for us to pre-agree the terms and the cost for residual risks to incept at the point in future when you do go to buyout. Number two is around wraparound cover. This is where schemes have done a buy-in with a different insurer in the past and that doesn't have any residual risk cover. But what they want is for us as the provider of cover for the buyout to extend our residual risk cover to cover those pensioner buy-ins that have been done elsewhere. And then finally we do see schemes around GMP equalisation. There's more of a question now, and this is really early days, but a question over whether we can include residual risk cover for historical transfer values that have been paid out since 1990, but on a non-equalised basis, will we actually equalize these transfers if those members ever come forward?

Jamie: And one final question we have for you today is what volumes and trends do you predict in the bulk annuity market for 2021?

Tom: We think the second half of the year is going to be a lot busier. Lots of large and medium-sized transactions have come in and are being priced right now. So overall, we expect the year to be similar, if not slightly larger. In terms of trends, the main trend that we expect to see, partly because lots of schemes are actually coming and saying that they found they're fully funded earlier than they expected, but also because we recently surveyed schemes and many of them told us that they are targeting buyout, but they want to do that without going through the buy-in or the longevity swap route first. So for those two reasons, probably the big trend we expect to see is fewer buy-ins and more buyouts.

Jamie: That's really interesting. That's all from us today. Which leaves me to thank you, Tom, for your time and your fantastic insights, and hopefully we'll catch up again soon. Thank you, Tom.