Re/insurance broker Aon is expecting another strong year for the bulk annuity market in 2020 after business reached a record high of £42 billion last year.
The market easily surpassed the previous record of £24 billion set in 2018, which was itself almost twice as high as the previous peak of £13 billion in 2016.
Aon attributes the dramatic growth to increased capacity for larger transactions, as well as stronger support from the reinsurance market, and strong funding positions for a significant number of schemes.
Analysts predict that these factor swill continue to influence the bulk annuity market in 2020, potentially leading to another very busy year for deals.
In 2019 the record for the largest bulk annuity was broken first when L&G secured the Rolls-Royce pension scheme for £4.6 billion, and then for a second time when Rothesay Life wrote a £4.7 billion transaction for telent.
In total, there were 10 bulk annuity deals of over £1 billion placed in 2019, compared to the previous record of four in 2018.
Given the increasing maturity of the UK defined benefits market, Aon expects market volumes of more than £30 billion to be the norm in 2020 and beyond, with precise volumes depending on when the largest schemes are ready to transact.
Analysts are not currently expecting 2020 to beat the record set last year, but noted that pricing is still competitive and backed by strong capital, with an increasingly broad set of asset and reinsurance opportunities available.
However, these dynamics do mean that there is increasing competition for some of the illiquid assets that are helping to support annuity pricing, which have become more popular for pension schemes due to the long-term stable income they provide.
Aon therefore expects asset supply to be the defining factor on the number of possible transactions in the near-term.
The broker added that insurers will likely be more selective about the auctions they participate in this year, given the continued interest from schemes.
