Re/insurance broker Aon believes that 2021 could potentially be another record year for the UK risk settlement industry.
According to Aon’s data, the UK pension scheme risk settlement market exceeded £54 billion last year, breaking all previous records.
But analysts see no sign of momentum slowing, meaning 2021 could reach eclipse even this figure.
“Despite all the problems and a general lowering of expectations regarding deals, 2020 saw the UK pension scheme risk settlement market – bulk annuities plus longevity swaps – reach over £54 billion,” said Martin Bird, senior partner and head of Aon’s Risk Settlement Group.
“This figure beats the record of £52 billion set the previous year and was achieved despite the initial dampening effect of the market having to cope with the pandemic,” Bird explained. “This result certainly proves the market’s resilience, as well as the real need for risk settlement by schemes and their increasing understanding of how to access the market.”
However, Aon did point to some changes in the market last year, with fewer jumbo deals than in 2019, but a 50% increase in the transactions below £1 billion in size.
That meant more small and mid-sized deals as well as increased numbers of pensioner buy-ins rather than full scheme buyouts.
There was also a strong trend towards repeat buyer transactions, underlining that well-prepared schemes with nimble governance arrangements were particularly well placed to capture market opportunities.
“In many ways, this is a sure sign of the market’s increasing maturity, of its understanding of how deals can be put together and of a significant improvement in streamlined transaction processes, which made them more attractive to insurers,” Bird continued.
“Now in 2021, it seems certain that everything we have seen over the past year must have added to the drivers for pension schemes to seek risk settlement measures. The COVID-19 pandemic is potentially the largest combined economic and political shock to the UK since the immediate aftermath of the Second World War. In that context, it is not surprising that we are seeing huge early appetite from schemes, and our expectation is that 2021 could be another record-breaking year for the industry.”
