I cannot see a happy end to this story – either in America – or in Britain, where much of annuity insurance written is backed by American insurers and American private credit.
In America, annuities do go belly up and need to be bailed out. Here is a comment following Dean McClellan’s post and the article that he quotes
The guarantees that back American annuities that insure people’s “wage in retirement” are financial instruments which are backed up by private credit which is itself a guarantee of payment made by financial promises that obscure rather than transparent.
Cracks have started to appear in the private credit and no doubt cracks will follow in American insurance writing American annuities.
In the UK we consider L&G, Standard Life, PIC, Just and Utmost are British insurers insuring British pension schemes providing British people with “wage for life” pensions.
But these British guarantees are no longer British. They are backed by American guarantees from American insurers backed up by American private equity.
So when Dean McClelland points us to an article that is written for Americans and has the headline
We should sit up and ask us what this means for the UK buy-out/buy-in Bulk Purchase Annuity Market. I read in all the surveys by the consultants involved in this BPA that the slowdown in business written since 2024 is because of the recovery of funding in our private funded DB pension funds.
I suspect that many funds are looking to run on because they see surpluses as a treasure to be enjoyed. But I suspect that there is also a sneaking suspicion that the offers from the majority of insurers tendering to buy-out their pensions are not as strong as we might suppose.
As always in these things , we will only discover if what I , Dean and others are saying has got substance in years to come. But that won’t stop me and others pointing to risks that do not need to be taken. We no longer need to buy out DB pensions , indeed many schemes that have bought-out or are in the process need not have done at any time. If they had listened to First Actuarial and the very few like Keating pointing to the madness of mark to market accounting as a way to value liabilities, then we would never have had this bonanza for insurers.
If we’d stuck with “Best Estimates” we’d still have had funded pensions which were invested for long-term growth, rather than a reliance on American insurers, reinsurers and their private credit.
