EY UK Life & Pensions (L&P) Outlook for 2023

• Life insurers expect to see a significant uptick in market activity next year 

• Tech driven transformation a key focus for actuarial science 

• New legislation and a new funding code likely to take effect for triennial valuations starting later in 2023 

Mark Godson, EMEIA Insurance - Risk and Actuarial Services Partner at EY, comments: “The current economic outlook has had an immediate impact on life insurers’ balance sheets in 2022, but the industry is robust, well capitalised and have weathered this year’s storm well. From a consumer perspective, high inflation is forcing an increasing number of people to re-evaluate their finances, and some are choosing to pausing or reducing payments into what they consider to be non-essential products, such as protection policies. This is a risk the industry must help customers consider, and monitor going forward to ensure it is only temporary. Amid challenging market conditions and as we look to 2023, there are significant opportunities for life and pension firms as they provide solutions to corporates and customers, and consequently, we expect to see a significant uptick in market activity across 2023.” 

Actuarial technology will continue to evolve and advance  

Ed Bujok-Stone, EMEIA Insurance - Risk and Actuarial Services Partner at EY, comments: “Over 2022, actuarial science benefitted from deep research around the application of machine learning and artificial intelligence (AI) to processes. We expect this activity to be sustained through 2023 as new digital techniques start to replace, challenge or complement traditional actuarial methods to the benefit of both the market and customers of insurance. Some of the main areas to benefit has been within proxy modelling, reserving, ensuring data quality, claims prediction, and around new business modelling. 

“Another expected trend in 2023 will be the continued use of “big data” tooling, particularly around visualisation. Actuaries have been adopting these tools for the last five years, and they are now becoming increasingly standard. The advanced use of systems such as automated linkage to actuarial models, integration with actuarial data systems, and API integration, will continue to gain traction, as they become increasingly critical analysis tools for the industry. 

“The ongoing rise in cloud computing will continue to impact actuaries through 2023, as it becomes even more prevalent within the modelling process. Most traditional modelling vendors have already implemented cloud solutions, but over the course of the coming year, we expect that even more models will move to the cloud in 2023, using advanced cloud deployment. Overall, advances in technology will continue to positively impact both actuaries and the wider insurance value chain.”  

2023 will be a critical year for the future strategic direction of DB pension schemes  

Eimear Kelly, UK Pensions Partner at EY, comments: “2023 will be a critical year for pension schemes and their sponsors to plan, discuss and agree the near-future strategic direction for their defined benefit pension scheme. New legislation and a new funding code will require schemes to reach full funding on a low-risk basis as soon as they reach significant maturity. While exact timing is still uncertain, this will likely take effect for triennial valuations starting later in 2023, and so for schemes without a plan in place currently, urgent action is needed, not least because the issues are complex, and require in-depth analysis and understanding of the underlying risks and interdependencies.  

“Whilst some schemes already have an agreed plan, it is likely it will need revisiting in light of the significant market volatility in 2022, which threw many schemes off course. The learnings from the recent LDI challenges will also need to be factored into future plans.”  

Significant increase in demand for risk transactions expected  

Leah Evans, UK Pensions Partner at EY, continues: “Market movements in 2022 will result in a number of schemes ending the year significantly better funded than they were at the beginning of the year. This is likely to cause increased demand from pension schemes for insurance buyout in 2023. However, demand is forecast to outstrip supply, and so, under prepared schemes are likely to find themselves at the back of the queue. 

“Issues related to dealing with illiquid asset holdings and cleanse membership data need to be properly worked through in early 2023, ahead of any approach to market, and may be the only way to get to the front of the queue. Over the last two years, other innovative end game solutions became available and these may provide an alternative option to insurance buyouts for some schemes. Working out which end game solution is right for which scheme is going to be a key focus for 2023.”