A £1.7bn merger of the UK’s two main specialist enhanced annuity providers Just Retirement and Partnership Assurance will not lead to a less competitive market say consultants.
The merger, announced this morning, will see Just Retirement shareholders take a 60 per cent stake in the new entity, with Partnership’s shareholders taking the remaining 40 per cent share.
Just Retirement chief executive Rodney Cook will head up the new organisation under the brand JRP. Partnership chief executive Steve Groves will step down.
JLT Employee Benefits principal, buy-out team Tiziana Perrella says: “The merger between Partnership and Just Retirement will create a ‘Goliath’ in the medically underwritten annuity market. This would lead to a near monopoly, at least in the short term, as the two companies have accounted for the vast majority of the medically underwritten transactions so far.
“One would think that the deal would result in less competitive pricing in the market. However, this won’t necessarily be the case as insurers have rarely agreed to accept a single set of underwriting data, preferring instead to use their own questionnaires, so that rarely pension schemes could simply, quickly and cost effectively get a quote from more than one insurer. Whilst having a negligible effect on competition, the merger could boost the financial strength of the new company, reducing trustees’ worries about counterparty risk. Overall, this could turn out to be a good deal for pension schemes.”
Aon Hewitt principal consultant John Baines says: “The medically underwritten annuity market has become mainstream with close to £1 billion of business written in the past 18 months. With one of the main reasons for the proposed merger between Just Retirement and Partnership being a focus on growing in the DB pension market, we don’t expect that this growth trend is likely to change.
“As with any merger, there is a risk of reduced competition driving up prices. However, in this case, that risk is likely to be mitigated by the new entrants that are poised to enter the market imminently, by the increased interest of traditional insurers in using medical data to sharpen their pricing, and also by the need to retain a competitive pricing basis relative to traditional insurers.
“The view we have given when advising clients, is that there would be a reasonable chance that one or both of Just Retirement and Partnership might not remain as stand-alone insurers, given their size and the specialist nature of the marketplace. While the timing was not necessarily expected, the focus of the combined group on enhancing the covenant ought to be good news for both existing and future policyholders.”
Hargreaves Lansdown head of pensions research Tom McPhail says: “This should not be seen as evidence of the death of annuities. Investors still show a strong appetite for a secure retirement income for at least some of their pension pot and for those that do shop around on the open market, enhanced annuities now make up over 75 per cent of all transactions.
“Just Retirement has the larger market share and its share price has proved more resilient since the Budget bombshell, though Partnership’s share of business has been increasing in recent months. The two companies’ combined share currently makes up over 40 per cent of the open market annuity business. As highlighted in their announcement this morning, there is still considerable potential for enhanced annuity providers to add value to defined benefit scheme derisking strategies.”