Bulk annuities growth dependent on ‘jumbo’ deals and consolidators

Despite the need to manage the effect of Covid-19 across volatile financial markets, uncertainty around longevity considerations and the changeable appetite of providers, more than £50bn of pension scheme liabilities were transferred to insurers and reinsurers in 2020.

Martin Bird, senior partner and head of risk settlement at Aon, explained that “schemes will need to take a robust approach to get settlement transactions over the line in 2021”, due to the current economic uncertainty, driven by Brexit and the pandemic.

He said: “But we can be certain that there will inevitably be attractive pricing opportunities due to intermittent periods of market volatility and heightened provider appetite.”

The consultancy firm expects strong appetite from insurers and reinsurers to grow the market further in 2021, with “attractive opportunities for schemes of all sizes”, noted Mike Edwards, partner in Aon’s risk settlement team.

He added: “While many insurers continue to have the greatest appetite for billion-pound-plus transactions, we expect that overall capacity in the market will be £30bn to £40bn, with a number of insurers looking to increase market share.

“However, overall volumes will, as always, be driven by the number of large transactions.” 

With the Pensions Regulator launching an interim regulatory framework for commercial defined benefit consolidators in June 2020, the interest from schemes in superfunds is growing, with Karen Gainsford, principal consultant in Aon’s risk settlement team, expecting the first transaction to take place in 2021.

She said: “The bigger question is how successful the consolidators will be at achieving scale and how quickly this may happen. A common theme in 2020 was of keen interest among pension schemes but a reluctance to be a first mover.

“Once the first deals occur and the concept is proven, it is entirely possible that we could see the floodgates open to superfund transactions in 2021.”