Stress test shows ‘reassuring picture of resilience’ across bulk annuity insurers
Pensions & benefits Pension risk transfer DB pensions Risk
The Bank of England has today published the aggregate results from its latest life insurance stress testing exercise (“LIST 2025”), providing the first market-wide view of how the solvency of major UK life insurers – particularly those active in the bulk annuity market – would be impacted by a severe and persistent financial market shock, and how they would respond.
LIST 2025 shows that, as at 31 December 2024:
- Aggregate solvency coverage ratios fell from 185% to 154% under the core scenario of a severe but plausible financial markets stress
- Aggregate solvency coverage ratios fell a further 10% to 144% should the core scenario result in the failure of their most material Funded Reinsurance arrangement.
James Silber, Partner at LCP, commented: “The initial aggregate results of LIST 2025 show a reassuring picture of resilience across the bulk annuity insurers, even under severe financial stress. That should give trustees and sponsors confidence in the sector’s overall financial strength and additional comfort over the security of insured member benefits.”
“Today’s results indicate all firms remained solvent throughout the core scenario with significant but manageable impacts at the aggregate level. Additional testing on Funded Reinsurance shows limited aggregate exposure in the event of a reinsurance failure. This is reassuring as it adds colour to the industry’s exposure to Funded Reinsurance – an aspect that has typically been difficult to properly assess from existing public disclosures.”
“With the Bank of England due to publish firm-level results next week, it will be important to look at how individual insurers compare - as differences in asset mix, capital strategy and use of reinsurance can have a big impact on their risk profile.”
Charlie Finch, Partner at LCP, added: “LIST 2025 is a really important exercise – we project a staggering £350bn to £550bn of assets will be transferred from defined benefit pension schemes to insurers over the next decade. For schemes that plan to enter into a buy-in now or in the future, LIST 2025 provides an opportunity to better understand the robustness of the insurance regime and the differing risk profiles between insurers.”
