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How will the BPA market affect institutional investors?

How will the BPA market affect institutional investors?. David Evans Business Development Director (Bulk Purchase Annuities) 27/02/07. Bulk Purchase Annuities. What is a bulk buyout?

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How will the BPA market affect institutional investors?

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  1. How will the BPA market affect institutional investors? David Evans Business Development Director (Bulk Purchase Annuities) 27/02/07

  2. Bulk Purchase Annuities What is a bulk buyout? A bulk buyout is the transfer of assets and liabilities from a defined benefit occupational pension scheme to an insurance company

  3. Bulk Purchase Annuities Traditional buyout market • Securing benefits for members of wound up pension schemes • Typically wound up schemes of insolvent employers Legal & General history • Have sold over 2500 bulk annuity policies to over 1500 pension schemes • Sold over 260 bulk annuity policies in 2006 – premium £1.03bn

  4. Bulk Purchase Annuities The “new” buyout market • FRS17, PPF, and increasing influence from tPR on the running of the sponsoring employer leading to growing interest in buyout solutions from ongoing pension schemes • Companies becoming less willing to hold volatile pension liabilities on their balance sheet • New buyout solutions being developed to address this “new” market • Flexible buyout solutions • Risk mitigation products

  5. Bulk Purchase Annuities Increased competition • New players entering BPA market, including Norwich Union, AIG, Paternoster, Synesis, PIC • Mainly targeting insurer to insurer and large corporate deals • Some competition in L&G’s core market • Stimulating innovation in: • Product design • Pricing methodology • Asset management strategies • Capital syndication ideas

  6. Bulk Purchase Annuities Development of new risk management solutions • Tranche buyouts • Staged buyouts • Profit sharing buyouts • Bundling of bulk annuity products with LDI mandates • Mechanisms for managing longevity risk for schemes and insurers Targeted at ongoing pension fund market Designed to address the reasons why ongoing schemes have not historically purchased bulk annuities

  7. Bulk Purchase Annuities Impact on (long only) traditional fund managers • Traditional Market • Small – typical sales £1 - £2bn per annum • New Market • Potentially huge • Capacity of existing and new players in market estimated at £40bn

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