I’m not sure I agree with Gordon Aitken here. Insurers may be more competitive with bulk annuity purchases but will DB pension schemes want to sell up, now they find themselves even more in surplus? Business Conditions are not always in favour of “de risking”, we may have seen the value of growth out-playing the certainty of a buy in and buy out from an insurer.
UK life insurers have often outperformed when gilt yields rise
Let me explain the chart:
- 2012 – 2021: Mostly a positive correlation between sector relative performance and gilt yields.
- 2021 – 2024: The relationship flips to a negative correlation. Yields rise and the sector underperforms.
- Sep 2024 – End 2025: Positive correlation. Yields moved from 3.8 to 4.7%, and the sector rallied.
- End 2025 to today: Negative correlation. Gilts sold off again towards 5.0%, sector underperformed.
Gordon explains that investing in insurers, despite their wins in terms of Bulk Purchase Annuities (and elsewhere in workplace pensions and retail annuities) has not been seen by the market as “good news”. Well done Just for getting a positive prices over the last few months but the big noise is from Aviva, L&G and Standard Life who haven’t been taken over by an American insurer (yet?)).
Gordon explains why share prices have dropped as they have since Christmas
When gilt yields rise, bond prices fall. Life insurers hold enormous bond portfolios. The instinctive conclusion is that rising yields must be bad for insurers, reducing the value of their assets and weakening their balance sheets.
But Gordon sets his three positives (see the linked in post).
I think the beneficiaries of the fall in share prices of our insurers will not be those who want their pension schemes bought out. They are fewer as more look at run-on and deals as Stagecoach PLC did with Aberdeen , keeping its pension scheme in a safer covenant. This is not factored into Gordon’s “new business conditions” and while I get that the solvency ratios improve , I don’t see enough here to turn it round for the insurers who are looking increasingly attractive to the powerful American finance houses,
Gordon finishes
The current negative correlation between gilt yields and life insurance share prices is explainable, given the broader equity market sell-off and the geopolitical backdrop. History tells us that the relationship is often the other way around. The evidence from the companies’ own sensitivity disclosures confirms it: rising rates are, at worst, neutral and often positive for these businesses. The fundamental picture for UK bulk annuity writers remains strong.
My vision is quite different. I think that insurers are vulnerable to the seemingly stronger American Finance Houses including Prudential Financial, Brookfields, Apollo and Blackstone. I think the market is turning against them on bulk purchase annuities and that collective DC will eat into insurance company workplace pensions. I think that the individual annuity market will thrive but it is a small market and no longer a major part of the insurer’s business.
Thanks to Gordon Aitken, he writes brilliantly and educates us. He may be right and insurers may recover their but the market is currently unconvinced by the ABI and its members!