On the go: Around £25bn worth of bulk annuity transactions is expected by the end of the year, recovering from a slow start and creating momentum expected to carry over to trades in 2022, according to Aon’s latest risk settlement market update.
The bulk annuity market was “relatively subdued” in the first half of the year with only £7.7bn of transactions written, which the report attributed to “a slower pipeline of transactions in early 2021 after a flurry of deals in late 2020”.
“We believe this was a hangover from lockdowns in 2020, when focus was diverted away from initiating new settlement projects,” it stated.
Auctions picked up over the summer, however, thanks to heightened concerns about employer covenants, rising scheme funding levels, and attractive insurer pricing.
“Overall, we expect around £25bn of bulk annuity transactions to be written in the year, with strong momentum expected to carry over to 2022 trades,” the report stated.
“Quite how high 2022 volumes reach will depend partly on how quickly companies settle down to a normal operating environment – but the right conditions might lead to a new record year in 2022.”
Legal & General “led the way” during the first half of the year, as it did in 2020, writing 38 per cent of the market, while other providers have seen more substantial deals struck during July and August that have improved their 2021 total.
Smaller schemes of under £100m accounted for 65 per cent of all deals written, up from 54 per cent in 2020. No deals of more than £1bn were made during the first half of 2021, but the report said this is expected to change once deals for the second half of the year are disclosed.
Longevity swaps got off to a stronger start, with around £13bn worth written in the first half of this year, more than half the total publicised swaps (£24bn) in 2020, which was itself a significant rise over the figures from 2019 (£11.8bn) and 2018 (£4.7bn).
“The past couple of years have shown that longevity swaps continue to be popular for pension schemes, and their increased flexibility is attracting more mid-sized pension schemes to consider this as a risk settlement option,” the report explained.
“It is also notable that swaps have been particularly attractive in the financial sector, where sponsor capital considerations play an important role in decision-making. Given the uncertainty of the impact of Covid-19 on long-term mortality, it is no surprise that more schemes are looking to hedge longevity risk.”
