Strong solvency levels will boost the UK pension scheme risk settlement market in the second half of 2024, according to global insurance and reinsurance broker Aon.
According to analysts, the publication of insurers’ latest annual returns confirmed that solvency levels remain strong and with ample headroom to support significant new business volumes.
“Most insurers are reporting slightly lower solvency coverage at year-end 2023 compared to the previous year. This largely reflects some return to normality following unusually high positions, in particular driven by favourable market conditions towards the end of 2022,” Aon noted.
Adding: “While 2023 saw some capital strain from a record year of market volumes (in most cases without a need for raising new capital to support it), insurer balance sheets typically remain around 200 percent.”
This figure is comfortably higher than target operating levels, which is also an indication of the ability to continue to write very significant levels of new business.
Martin Bird, senior partner and head of the risk settlement team in the UK at Aon, said: “Experience tells us that there are several ‘levers’ that affect the risk settlement market and changes in any of them always affect how it operates from year to year or even within 12-month periods. While the market has been healthy in the first half of this year, it has been relatively slow compared to 2023 and may need a spectacular second half to match last year’s total volumes.
“However, with insurer balance sheets remaining so well capitalised, we can be sure that they – and their shareholders – will be keen to see their war chests put to use supporting new business in the rest of the year and into early 2025.”
Additionally, newer entrants to the bulk annuity market, which are likely to be especially aggressive on pricing as they seek to establish a foothold in the market, are expected to further support competition and overall capacity, according to Bird.
“This is great news for the market, and in particular for smaller schemes who may well be the beneficiaries of that. They will offer the best opportunity to make an early impact,” he concluded.
