What the rise in BPA deals means for actuaries

This article was written by Jacob Stokes, Actuarial Consultant at 4most, and originally published in The Actuary. 

Persistently high interest rates and life insurers’ appetite for bulk purchase annuity (BPA) transactions have made these deals a defining feature of the UK life insurance and pensions landscape. In this article we delve into the rise of BPA transactions in the UK, and what this means for actuaries.

What is BPA?

A BPA is an agreement in which an insurer assumes the liabilities of a defined benefit (DB) pension scheme seeking to de-risk and secure guaranteed pension payments for its members. As more DB schemes look to reduce risk, demand for BPA solutions has surged, reshaping the market and creating new opportunities, and challenges, for actuarial professionals.

There are two main types of deal:

1. Buy-in – where the pension scheme holds the policy directly as an asset.
2. Buy-out – where policyholders are removed from the scheme and the insurer deals with them directly.

Most schemes go through the buy-in process first. This is down to factors including regulatory requirements, member communication and risk management. The complexity of certain schemes can also mean that a buy-in is a necessary step before moving to a full buy-out.

Pension schemes and insurers assess the reasonableness of each avenue before pursuing a BPA contract, and consider pricing, longevity risk, and capital modelling methodology.

What is driving the increase in BPA deals?

The first BPA deals in the UK were written in the 1980s but, since the beginning of the 21st century, we have witnessed significant growth due to a range of market factors. There has been a boom in the market since 2021, underpinned by persistently high interest rates. These high rates have reduced the present value of pension scheme liabilities, meaning schemes have been able to consider risk transfer sooner.

In addition, post-Brexit regulatory reforms and new BPA market entrants have increased the competition, driving further engagement. This competition has been a challenge for traditional life insurers to contend with, as new firms join the race to write deals.

The dynamics of the deal

Writing BPA business can be a drawn-out process but, with its rapid expansion in the life industry, consultancies and insurers are working together to write more deals and enable DB schemes to de-risk. From an actuarial viewpoint, pricing and reserving are staple areas of involvement. From assumption setting to technical provisions and regulatory adherence, the relevance of pricing and reserving cannot be overlooked.

Asset-liability matching (ALM) and longevity risk considerations are also important in assessing the viability of a deal. ALM is crucial to ensure that long-term cashflow obligations can be met, while assessing longevity risk may reveal that further action needs to be taken; reinsurance may present itself as a way to hedge against the risk of policyholders living longer than expected. Marrying these factors can be a convoluted endeavour that requires expertise from many disciplines, not just from the actuarial sector.

2026 outlook

Looking beyond 2025, actuarial skills will be paramount in the successful management of BPA deals. With more deals being written, actuaries will find themselves in demand – whether from a pricing, capital modelling, or longevity analysis perspective.

The ever-widening capabilities of AI mean that actuaries and insurers will have to give ample weight to its involvement in BPA processes. AI could be used to streamline processes and free up resources to work on other, more onerous parts of BPA deals, or even in other areas of a business. However, this must be done appropriately and in line with data management practices. Actuaries (and firms) who can harness the power of AI will be well positioned to take advantage of new business and establish their place in the market.

As BPAs expand their presence in the UK life insurance sector, there is room for innovation. Deferred premium deals or phased buy-ins allow greater flexibility in the de-risking of DB schemes. In an expanding sector, actuaries will be influential in steering the direction of future deals and navigating the choppy waters of longevity risk for insurers and pension schemes alike.

Get in touch

Send us an email if you want to learn how 4most can support your organisation’s BPA strategy – info@4-most.co.uk.