2022 set to be a bumper year for bulk annuities

Momentum increased last year after a slow start commonly attributed to the lingering effects of the pandemic and associated lockdown policies. There was around £20bn of buy-ins and buyouts completed in the second half of 2021, with only 2019 boasting a higher volume.

LCP’s latest derisking report, published on Wednesday, predicted that demand for buy-ins and buyouts could reach £650bn over the next decade, with annual volumes of between £30bn and £50bn a year until 2025, after which there is the potential for significantly higher volumes.

The consultancy noted that insurer capacity increased going into 2022, with several insurers having the appetite and the capability to underwrite transactions in excess of £10bn. It suggested that 2022 could see the transaction size record — currently £4.7bn — broken this year.

Additional capacity will be made available by the emergence of superfunds. Clara Pensions was cleared to begin accepting transfers late last year, and the first superfund transactions are expected in 2022. However, LCP suggested that they are likely to remain a small part of the overall risk transfer market.

Among traditional insurers, the consultancy predicted a “shake-up” in the market leaders. Dominated by Legal & General, the Pension Insurance Corporation and Rothesay Life since the market first hit £10bn in 2014, Aviva has since become one of the largest players — reaching a market share in excess of 20 per cent in 2021 — and LCP expects that Standard Life will increase its market presence this year.

Charlie Finch, partner at LCP, commented: “The good news for schemes going into 2022 is that insurer capacity for buy-ins and buyouts is rising, with competition between insurers remaining fierce. After a near record-breaking second half to 2021, we are expecting activity to increase in 2022, reaching £30bn-£50bn, and believe the transaction size record could be broken.

“Our message to schemes is to have a clear strategic plan and consider if there are opportunities to take down risk on attractive terms through a buy-in for part of their liabilities. Changing market dynamics as insurers vie for transactions and continued market volatility could provide attractive pricing windows over 2022.”