Our Takeaways from Gordon Aitken’s Work on Life Insurers

Buy as Shareholders.  Avoid as DB Schemes without Value Sharing

Gordon Aitken’s work is brilliant on the pension risk transfer market.
Buy UK life insurers – while stocks last.  They have a terrific business model and a highly supportive regulator.  North American private capital recognise great value when the see it.  And they are taking over.  UK equity investors shrug.  Perhaps pension regulators need to coordinate better outcomes for all stakeholders.
Aitken’s work is also a “must read” for UK DB pension scheme trustees and their advisors contemplating risk transfers.  
And then they can ask themselves, as you have to, some relevant questions:

• What is the value at risk to scheme members from which a bulk transfer protects you and what is the probability of needing protecting?  PPF gets stronger and stronger and the no Government guarantees, FSCS becomes more uncertain as new owners arrive.
• Should the exercise of discretion be given away for nothing as surpluses become more readily available?  What about value sharing?
• Why have virtually all longevity risk transfers cost schemes large sums?
• When the magic (fairly close) matching adjustment lets insurers re-risk, why are schemes still selling out (in cash) liabilities calculated at gilts plus a slither of return?
• The PRA now recognises funded reinsurance let primary insurers make instant profits on £40 billion.  The capital required was too low.  Gosh.  How did that happen?
• Is it wise for PRA to give our new international private debt friends a 2 year head start in how to operate its “investment accelerator”?
• The 2025 Life Insurer Stress Tests showed a really well capitalised UK market – thanks to the sector’s remarkably profitable business streams (see Aitken’s work).  New business strain can be as low as 2% of premia.  Not much stress on balance sheets.  North American private equity is not known for leaving surplus capital lying around.  Will it be a “stable door” job when LIST returns in 2028?
• By 2028, new rules on surplus use will be in place – guardrails and all.  Will exercising discretion be fashionable amongst those with a completed Technical Actuarial Standard 300 V2.1 Report?  What’s the upside?

And with the answers to the questions, perhaps schemes should say “avoid” for now to Bulk Pension Annuity deals.  Wait and see – certainly until life insurers are ready to share value over time.


Who’s Winning in the Bulk Annuity Carve Up?  Regulatory Menu Updates Needed

Gordon Aitken is a vastly experience insurance company financial analyst.  He has produced recently some quite outstanding work covering the arrival of large, North American groups in UK pension risk transfer market.  It concludes:

“Five of the most sophisticated long duration capital allocators in the world have looked at the UK BPA market and concluded it is worth real money”.

Aitken notes the new wave of global investors prefer to be involved with DB rather than DC.  Go with the big numbers.  There is still over £1 trillion to play for.  Put off by the insurance Black Box, UK equity investors shrug.  Regulators have been remarkably accommodating.  The improved Solvency UK “matching adjustment” is magic in how it can shrink liabilities and grow returns.

His message is that “funded reinsurance” was one concession too many to international life insurers able to originate fixed income assets with their associates.  It favoured Bermudan based groups over UK listed groups and distorted competition.  PRA recognised instant profits were made by insurers.

What do these analyses tell you about the UK quoted insurers’ valuations and about coming frictions and factions in the life insurance industry?  Will L&G remain independent?  Best read the Aitken research.

What could be added to the work for those less committed to the insurance market is that it’s high time for UK DB schemes to be more sceptical before handing over value to a global private capital led industry. 
 
PRA first spoke 3 years ago about gluttony being an issue for life insurers.  Too rich a diet of DB schemes being available might not be healthy.  It’s been quite a carve up since Solvency UK and funded reinsurance added extra spice.  Now the Bermudans have arrived with new, sophisticated recipes.  The regulatory coordination the Government promised during the passage through the Lords of the Pension Schemes Act 2026 could prove useful.  PRA’s desire for “moderation in all things” perhaps requires a menu update of improved disclosures and transparency.  And fair shares for all stakeholders.

Be ready to exercise discretion.  Joining PRT dinners is not compulsory.  Run on beats buyout for members and sponsors.


Sign up for Gordon Aitken’s Analysis: With “on the money” cartoons and graphics:

• The Silent Tailwind: How Falling Life Expectancy Has Powered UK Insurers  (Provision releases linked to use of IFoA / CMI tables contributed 20% to life insurer operating profits. And that excludes reinsurers’ profits)
• Private capital is moving into bulk annuities: what it means for listed insurers  (Stories about red and grey squirrels)
• Is Standard Life about to trade 20% IRRs for a re-rating?  (Misunderstood so long it gave up)
• The regulator doesn’t do favours, this time it did.  (FundedRe: Too generous)
• 27 years on: is L&G back in play?  (The next domino?)

FT’s Lex column picked up on Aitken’s analysis of Standard Life.  Life insurers are the smart money.  Leaving it to them is for the best.  But a health warning may be needed.  FT has also written up comprehensively on anxieties over private credit.  
Members, sponsors and trustees should be pretty keen to have a new, coordinated, risk-benefit regulatory menu setting out the ingredients in case of allergies.