BPA buy-in transaction process

Preparation & Feasibility Analysis

• Key Stakeholders: Pension Scheme Trustees, Acutaries, Investment Advisors, Legal Advisors
• Trustee Objectives: The trustee determines whether a BPA buy-in aligns with their de-risking strategy, considering funding levels, longevity risks and sponsor support.
• Feasibility Study: An actuarial assessment is conducted to evaluate the scheme's readiness and affordability.
• Market Engaement: The trustee's advisors engage with insurers and reinsurers to gauge interest and indicative pricing.

Request for Quotation (RFQ) & Insurer Selection

• RFQ Issuance: The trustee, via its advisors, invites insurers to submit bids based on scheme data.
• Indicative Pricing: Insurers povide initial pricing estimates based on mortality, asset matching, and scheme demographics.
• Reinsurance Arrangements: Insurers engage with reinsurers to secure competitive pricing and risk-sharing aggreements.
• Shortlisting & Negotiation: Trustees assessinsurer bids, negotiate terms, and select a preferred insurer.

Due Diligence & Final Pricing Confirmation

• Key Statkeholders: Trustees, Insurer, Reinsurer, Legal Advisors.
• Data valudation: The scheme ensures all member data is accurate to prevent future adjustments.
• Final Reinsurance Agreement: The insurer finalises reinsurance terms to transfer longevity and investment risks.
• Legal Documentation: Contracts, including the buy-in policy, reinsurance agreements, and security arrangements, are drafted.

Post-Transaction Monitoring & Data Cleansing

• Key Stakeholders: Trustees, Insurer, Reinsurer, Administrators.
• Regular Data Reconciliations: The insurer reconciles policyholder data with scheme records.
• Claims Processing: The insurer manages pension payments, backed by reinsurance.
• Longevity Risk Monitoring: The reinsurer evaluates ongoing mortality experience and adjusts risk exposure as needed.

Potential Future Buy-out (Opetional Next Step)

• If the scheme aims for a full buyou, the buy-in poliy can be converted into a buyout, where members are issued individual annuity policies, fully removing pension liabilities from the scheme.

Why This Matters

The BPA market has become a $100+ billion global industry, serving as critical infrastructure for pension risk management. While technological innovation and regulatory changes are driving growth, insurers must navigate evolving challenges in longevity risk and margin pressures.