Highlights from our fourth Discoveries Series event

id

In May, we hosted our fourth event in our Discoveries Series focusing on ‘Meeting rising demand: spotlight on assets’. We welcomed guests from across the de-risking industry to discuss: 

• The investment considerations for bulk annuity insurers; 
• How asset managers view bulk annuity investment, trends and the available asset universe; 
• Regulatory developments, including the impact of Solvency UK and the Government’s productive finance agenda.  

Our host for the evening, Kunal Sood, Managing Director of Defined Benefit Solutions and Reinsurance, was joined by four guest speakers: 

• Mike Eakins (Chief Investment Officer, Phoenix Group) 
• Justine Lowe (Senior Investment Manager, Phoenix Group) 
• Rob Lynch (Head of UK/Ireland Insurance Client Business, Goldman Sachs Asset Management)  
• Sarah O’Sullivan (Head of Strategy and Regulatory Change, Phoenix Group)  

Investing to support our bulk annuity franchise  

The evening started with a fireside chat between Mike Eakins and Justine Lowe, focusing on how Phoenix Group invests to support Standard Life’s bulk annuity franchise.  

Mike outlined the developments that Phoenix have made since 2020, when we acquired ReAssure to become the UK’s largest long-term savings and retirement provider. Since then, Phoenix has built out the asset management arm of the business. This is enabling Phoenix to invest premiums received from writing bulk annuity business into an efficient, risk managed and high-quality portfolio, supporting our customers, shareholders and the wider economy.  

To wrap up the fireside chat, Mike gave his thoughts on answer the question ‘How does an insurer invest?’, highlighting the following key elements of an insurer’s BPA investment strategy from Phoenix’s perspective: 

• Matching adjustment (MA) eligibility of assets  
• A strong focus on credit quality  
• A strong illiquid sourcing team with the ability to get access to long duration illiquids  
• A well managed collateral framework with carefully calibrated liquidity buffers 
• Aligned to sustainability goals 

An asset manager’s view on bulk annuity investments  

Kunal then welcomed Rob Lynch, who joined us for the evening from Goldman Sachs. Goldman Sachs manages c. $500bn of assets for insurers globally on behalf of 200 clients. They manage assets across the buy-out space in traditional private equity, but also in infrastructure, real estate and private credit where there are dedicated funds.  

Rob discussed the recent market and regulatory developments that have significantly changed pension fund and insurer investment strategies. The session focused on the unique features of the secondaries markets for illiquid assets as pension schemes look to exit private investments to support BPA transactions, and the ongoing trend of insurers looking towards the deep US liquid credit market to meet the volume of deployment needed to support BPA growth.  

Regulatory developments 

To end the evening, Sarah O’Sullivan, who has been leading the work on the Solvency UK reforms within Phoenix, provided an overview on regulatory developments in the insurance regime.

Sarah’s session focused on final changes to the Matching Adjustment regulations. In particular, Sarah discussed the introduction of the requirement for firms to attest to the level of the Matching Adjustment, which Phoenix views as a positive risk management tool, whereby insurers can take greater ownership of the reserves they hold on their balance sheet. Sarah also outlined the introduction of a more granular Fundamental Spread and which will increase reserves as credit ratings downgrade through rating notches. The removal of the cap on MA benefit for sub-investment grade assets will also smooth this cliff edge when assets downgrade. Assets with highly predictable cashflows will now be allowed with less penal treatment, up to a limit and subject to meeting strict additional cashflow matching criteria.

Sarah noted that despite these changes, from an asset perspective Phoenix doesn’t expect a material shift in the investment strategy for UK insurers.

Sarah highlighted that Phoenix have been advocating for the need for even greater flexibility in the asset rules, and explained the Matching Adjustment Sandbox proposal to close the gap between legislation and rules. This proposes a dialogue framework to facilitate broader investments in MA funds and to provide a mechanism for further rule enhancements to future-proof the regulatory regime.

You can read more about this: Solvency UK: the case for introducing a Matching Adjustment Sandbox | Phoenix Group (thephoenixgroup.com)