The UK bulk purchase annuity (BPA) market is drawing closer regulatory scrutiny and fresh questions about asset risk, but a scenario analysis by S&P Global Ratings concludes that BPA insurers' capital positions would hold even under severe private credit stress.
The ratings agency found that non-traded, illiquid assets account for close to 40% of the average BPA insurer's matching adjustment (MA) portfolio. Of that, roughly 12% of the total MA portfolio sits in private credit, including infrastructure debt, collateralised loan obligations, and middle-market loans.
S&P built a hypothetical portfolio modelled on the average UK bulk purchase annuity insurer's MA holdings. It stress-tested the book against the credit shock of 2001–2002 on property-secured assets, a 20% property value drop on equity release mortgages, and the financial crisis of 2007–2009 on remaining private credit exposures.
The scenario analysis arrives against a backdrop of accelerating private capital entry into the bulk purchase annuity sector. Athora Group completed its £5.7 billion acquisition of Pension Insurance Corporation (PIC) in March 2026, making PIC roughly 45% of Athora's total assets under management. Separately, Brookfield Wealth Solutions completed its £2.4 billion purchase of Just Group on April 1.
S&P said those transactions have fuelled concerns that private-capital-owned insurers will increase allocations to private assets, following patterns already established in the US market. The PRA flagged closer scrutiny of BPA market participants in its 2026 supervisory priorities, citing risks from weakened pricing discipline and growing funded reinsurance exposure.
An insurer carrying a 200% coverage ratio under S&P's capital model could absorb a default rate of approximately 11% across the illiquid portion of the portfolio without breaching the 99.5% confidence level. Capital buffers held above that threshold even when S&P modelled the internally rated portfolio as comprising entirely 'BBB' or 'BB' rated assets, substantially below the credit quality most bulk purchase annuity insurers report.
Those findings align with the PRA's 2025 Life Insurance Stress Test (LIST 2025), which covered 11 of the largest BPA-active UK life insurers. Under the core stress scenario, firms absorbed a combined £8.6 billion reduction in capital surplus and £12.9bn in bond downgrades. The aggregate SCR coverage ratio fell from 185% to 154% under stress, but all firms continued to meet their regulatory capital requirements.
S&P attributed the higher private credit allocation primarily to liability structure. The non-surrenderable, long-dated nature of UK annuity liabilities makes them a natural match for illiquid assets that capture the illiquidity premium.
Continental European insurers hold fewer long-term annuities and tend to prefer the volatility adjustment over the MA. PRA reforms under Solvency UK widened the MA investable universe, with eligibility extended to assets with "highly predictable cash flows," including speculative-grade instruments, subject to a 10% cap.
S&P noted that 90% of the private investment ratings disclosed by entities that make their ratings public are investment-grade. In aggregate, about one-third of MA portfolio assets carry no external rating. Private investments are typically rated internally, with methodologies disclosed to the PRA for regulatory recognition.
UK bulk purchase annuity insurers are less exposed to middle-market loans than US peers. The UK's more bank-centred mid-cap lending market and MA structural constraints that limit floating-rate instruments both reduce that exposure.
S&P flagged one risk its stress test did not capture: the behavioural effect on pension scheme sponsors. If private credit comes under strain, sponsors with surplus positions might run on rather than transact with bulk purchase annuity insurers.
That could reduce market size and affect the business risk profile of rated insurers. Legal & General research cited in the report projected the UK bulk purchase annuity market will capture half of an estimated £1 trillion global market over the next decade.
