De-Risking Insured Annuity Portfolios

Philip Simpson

This chapter focuses on the avenues that UK life insurance companies can pursue in managing the longevity risk arising from their annuity and pension-in-payment portfolios. The UK insured annuity market has been reshaped through pensions freedom and the capital requirements of the pan-European insurance supervisory regime, Solvency II, introduced in January 2016. Conversely, the UK bulk annuity market has continued to show healthy, but volatile, levels of transactions, with many expecting continued significant growth over the next few years.

Given an ever increasing ageing population worldwide, the global market for insurance products exposed to significant longevity risk is huge. There is a trade-off in retirement products between certainty on income and flexibility. Insured annuities (also called payout annuities) give certainty of payment but are generally inflexible once purchased.

The UK had been atypical in historically requiring individuals who had accumulated a personal pension but were not a member of an employer-sponsored defined-benefit (sometimes known as final salary) pension to purchase an annuity on retirement or before age 75. This led to a large annuity

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