Pension transfer instrument by which an insurer guarantees a scheme's annuities, as partial (buy-in) or full (buy-out) cover.
The bulk annuity is the central instrument of pension risk transfer, by which an insurer guarantees the payment of a defined-benefit pension scheme's annuities. It takes two main forms. The buy-in is partial cover: the scheme keeps its obligations toward beneficiaries but buys from the insurer an annuity covering the benefits, the insurance appearing as an asset of the scheme like a matching investment. The buy-out is full cover: the obligations are entirely transferred to the insurer, which becomes directly responsible for paying annuities to beneficiaries, and the scheme can be wound up. The move from buy-in to buy-out marks the final step of de-risking a pension scheme. For the insurer, these transactions concentrate very long-term longevity risk and significant amounts, managed through asset-liability matching and reinsurance. They require fine pricing based on biometric and rate assumptions, on which the profitability of obligations that can run over several decades depends.
A pension scheme first carries out a buy-in to secure its benefits, then a buy-out that permanently transfers its obligations to the insurer and allows its winding up.
bulk annuity, rente collective, buy-in, buy-out, rachat de régime