With the buy-in market moving fast, trustees face a big question: how do you make sure your credit investments are working for you—not against you—when it’s time to transact? The decisions made today have a direct impact on future security for scheme members and the costs involved in transferring liabilities to insurers. With the market landscape shifting rapidly, getting your credit allocation right is more important than ever. For those who can remember such things, think of it like tuning a radio – you need to adjust to get the clearest signal as conditions change.
So, how should schemes approach this challenge? We believe it comes down to three vital pillars that together form a robust framework for decision-making:
1. Market Factors: Staying Ahead in a Changing World
The financial markets are in a state of flux. Interest rates are moving, credit markets are changeable, and global economic conditions are anything but static. These factors can have a significant impact on the value and performance of credit assets held by pension schemes.
For buy-in focused clients, staying attuned to these market-driven factors is crucial. For example, a sudden rise in interest rates can erode the value of long-dated bonds, while a shift in credit markets can open up new opportunities – or risks. Schemes that monitor these trends and adjust their allocations accordingly are better placed to capture value and avoid unnecessary losses.
2. Insurer Factors: Understanding What Insurers Want
Insurers are at the heart of the buy-in process, and their preferences have evolved in recent years. They’re looking for portfolios that not only match their own risk appetite but also align with regulatory requirements and capital efficiency.
What does this mean for schemes? It’s about understanding the types of credit assets insurers value most – whether that’s high-quality corporate bonds, specific maturities, or assets with particular risk profiles. By aligning your credit allocation with insurer preferences, you can improve the attractiveness of your scheme to insurers, potentially securing better pricing and reducing transaction friction.
Moreover, insurers may have different appetites at different times, depending on their own balance sheets and market conditions. Keeping an open dialogue with insurers and advisers ensures you’re always one step ahead, ready to make adjustments as needed.
3. Scheme Factors: Tailoring to Your Unique Needs
No two pension schemes are the same. Your funding position, liability profile, and governance structure all play a role in shaping your investment strategy. A one-size-fits-all approach simply doesn’t work when it comes to credit allocations for buy-in.
Instead, schemes should focus on their own unique circumstances. Are you well-funded and close to buyout, or do you have a longer journey ahead? Do you have the governance in place to act quickly when opportunities arise? By considering these scheme-specific factors, you can ensure your credit allocation is not just theoretically optimal, but practical and actionable for your situation.
Why Now?
The current environment makes these considerations more urgent than ever. With market volatility on the rise and insurer appetites evolving, schemes that act now can position themselves for a smoother, more cost-effective buy-in process. Waiting on the sidelines could mean missing out on favourable conditions or facing higher costs down the line.
By focusing on market, insurers, and scheme factors, pension schemes can make informed, timely decisions that pave the way for successful buy-in outcomes.
Now is the time to review your approach, engage with advisers, and ensure you’re making the most of today’s opportunities.
Lucy Barron is a Partner at Aon in London
Any views expressed in this article are those of the author(s) and may not necessarily represent those of Life Risk News or its publisher, the European Life Settlement Association