Until 1995, the UK annuity market was essentially static, offering only conventional annuity rates. The situation changed with the introduction of enhanced annuities. Today, the product range includes impaired as well as moderately enhanced annuities on the basis of both full medical underwriting and simplified underwriting processes, and postcode and lifestyle annuities solely based on socio-economic factors.
Since 1995, Hannover Re has partnered with a number of providers to support product development and encourage market growth. The enhanced annuity market, its products, and its underwriting processes have all become more sophisticated over time. Among the improvements made was an agreement between the main providers to adopt a common medical questionnaire including additional questions relating to lifestyle factors and severe diseases.
Today, up to 95% of all enhanced and impaired life annuity applications are assessed on the basis of these questionnaires. For the remaining cases – typically those involving rare medical conditions – additional information like a general practitioner’s report is required before a quote is given. Nowadays, there are a number of portals that allow independent financial advisers to access information on products and providers, request comparative quotes, and transact new business including online medical underwriting. Customers obtain immediate guaranteed quotes from a couple of providers by simply answering a limited number of questions.
Hannover Re has more than 20 years of experience and expertise in the enhanced annuity market. We have access to a large database of impaired lives which we analyse on a regular basis to update our mortality assumptions. Our state-of-the-art automated underwriting system allows for immediate guaranteed quotes and enables Hannover Re and its clients to write enhanced and impaired annuity business on a profitable basis.
Since the mid-90s, we have positioned ourselves as a major reinsurer of enhanced annuities. Our detailed understanding of prevailing sales and distribution processes in the UK market allows us to provide solutions tailor-made to our clients’ needs.
Tax rules in the UK made it more or less compulsory to purchase an annuity before age 75. Tax efficient lump sum payments (drawdown) were only available up to a limit of 25% of pension pots. However, since April 2015 onwards pensioners will no longer have to convert their pension savings into an annuity. Pensioners now have complete freedom to draw down as much or as little of their pension pot as they like anytime they want. Caps and drawdown limits will no longer exist and only the marginal rate of income tax will be payable. The 25% tax-free lump sum is still available.
Although enhanced annuities volumes halved, Hannover Re considers the enhanced annuity market to remain an attractive segment and is eager to take up the challenges the new regulation brings.