AVIVA, Britain’s biggest insurer, will weigh into the £320 billion bulk annuities market within months, breaking the stranglehold of its two biggest rivals, The Times has learnt.

The insurer is thought to be planning to launch its new business as early as March, initially taking on chunks of pensions business worth up to £150 million at a time.

Legal & General and Prudential currently dominate the bulk annuities market, enabling them to set the prices paid by companies to offload their pension liabilities.

Gary Withers, chief executive of Norwich Union Life, Aviva’s UK life and pensions business, said: “It’s an expanding marketplace, one in which we have the necessary skills and investment flexibility and one which we’re researching.”

Bulk annuities are bought by companies with final-salary pension schemes in order to supply their workers with guaranteed pensions.

At present, movement in the market comes mainly via tranches of business sold between the insurance companies and pensions bought by companies that are winding up their schemes.

But analysts anticipate that in the coming years, companies will offload whole final-salary schemes, which will be fought over by traditional insurers as well as new entrants to the retirement market such as Mark Wood, the former UK chief executive of Prudential, who is currently setting up a new annuities company.

The bulk annuities market has more than doubled in just two years, from £1.2 billion in 2003 to £2.24 billion in 2004, and an anticipated £3.3 billion in 2005.

The Pru and L&G wrote the vast majority of bulk annuity sales in 2005, But analysts said that as the market continued to expand, there was room for new entrants.

Bruno Paulson, a senior research analyst at Sanford Bernstein, said: “What the market is worth now is a fraction of what it will be worth. Even a year ago there were about £320 billion worth of FTSE 100 pension liabilities out there, in addition to £30 billion in closed life funds.

“In an ideal world L&G and the Pru would want to keep it to themselves but they’re likely to be less worried about it. given the potential for exponential growth.”

Aviva is believed also to be researching the possibility of buying companies’ final-salary schemes. Bankers are attempting to develop a market for the schemes, as companies become increasingly desperate to offload the pension fund deficits that are hampering corporate transactions.

Aviva’s research is thought to be at an early stage, with any purchase unlikely before 2007.

Actuaries welcomed the prospect of a new heavyweight in the market but said that it could exacerbate the recent bubble in gilt yields because insurers are required to buy long bonds, or an equivalent, to maintain their solvency. In the past month yields on long bonds have fallen to an historic low of 0.46 per cent above inflation.

Stephen Yeo, a senior consultant at Watson Wyatt, the actuarial consultancy, said: “While this is a welcome move, it will do nothing to alleviate the distortions in long bond yields which are caused by the regulatory pressure for pension funds to demonstrate solvency.”

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