According to re/insurance broker Aon, the UK bulk annuity market recorded a total volume of £27.8 billion in 2022 and experienced its fourth successive year where more than £25 billion of business was written.
In the firm’s latest UK Risk Settlement Market Update, it shows that rising market yields reduced the value attributed to pension scheme transactions. Aon states that the market may have even gone on to pass £35 billion if yields had remained at the level they started at in 2022.
The broker said that this has left insurers with spare capital for transactions in 2023, and the key constraint for market size this year is likely to be the capacity of the teams at annuity providers to process transactions.
Aon said that it expects 2023 to see the return of a number of multi-billion-pound full scheme transactions, with Royal & Sun Allowance already having concluded the largest bulk annuity transaction to date – £6.5 billion, across two schemes – with PIC.
Across 2022, the average transaction size was c.£140 million, compared to 2021, which saw an average size of c.£180 million. Aon noted that the decline reflects the fall in value of pension liabilities over 2022 from the impact of increasing yields.
However, while the five insurers writing the greatest volume in 2022, remained the same as it did in 2021, with those being Legal & General, Standard Life, Aviva, PIC and Rothesay, there was a notable increase in the size range of transactions for Just Group, who wrote its record volume of bulk annuities in 2022 at £2.6 billion.
Just Group has also since announced its largest single transaction, a £513 million full scheme transaction with GKN in February 2023.
Within the longevity swap market, 2022 was another busy year, with £15.7 billion of publicly announced deals The largest deal of the year was an Aon-led £7 billion transaction for the Barclays Bank UK Retirement Fund, which was completed in December 2022, with the Prudential Insurance Company of America (PICA) providing reinsurance.
Additionally, Aon pointed out how 2022 also witnessed an increased level of competition as reinsurers priced aggressively and targeted higher volumes of business.
The market remained very competitive throughout the year, with an increased capability and appetite from reinsurers to write deferred risks.
Further, Aon noted that as schemes mature, longevity risk can become an increasingly dominant area of residual risk exposure. For schemes looking to retain investment freedom but contain longevity risk, longevity swaps remain an attractive option.