The risk reduction market: A review of the activity in 2021

Aon, Hymans Robertson, LCP and Mercer assess the key risk reduction trends of 2021

Jonathan Stapleton
clock • 10 min read
The risk reduction market: A review of the activity in 2021

2021 was a year that started slowly for the risk reduction market but ended in a flurry of activity. Professional Pensions rounds up consultant analysis of a year in risk transfer.


Risk settlement volumes last year totalled £43.8bn, with £28.6bn of bulk annuities and £15.2nn of disclosed longevity swaps, Aon's 2021 UK risk settlement market update has revealed.

The consultant said, despite a slow start in the first half of 2021, the market delivered the second busiest half-year on record, to end the year with £20.9bn of bulk annuities.

It said higher volumes in H2 can reflect year-end sales targets for certain insurers. This time the slow start reflected the challenges faced in 2020 by Covid-19 and the resulting lockdowns, which saw fewer projects beginning their transaction planning in 2020 or early 2021.

Aon said this did mean that insurers built up spare capacity that allowed a flurry of deals to be completed before the end of 2021, including three transactions over £1bn, and is supportive of bulk annuity transactions in 2022.

As the year developed, Aon said it saw a higher number of schemes start transaction planning.

Growing insurer competition

Aon said total volume reflected fewer multi-billion pound opportunities being available. It noted that, during 2021, there were only four transactions over £1bn, totalling £6.7bn altogether. This compared to seven transactions of £1bn+ in 2020 totalling £10.9bn, and 10 in 2019 amounting to £28.4bn.

Aon said it is these multi-billion deals that typically drive the highest volumes for Pension Insurance Corporation (PIC), Legal & General (L&G) and Rothesay.

However, it said four insurers wrote their record volume of bulk annuities in 2021 - Aviva (£6.2bn), Canada Life (£1.0bn), Just Group (£1.9bn) and Standard Life (£5.5bn).

Aon said Aviva's volumes have been steadily rising for some years.

The consultant said Standard Life - the trading name for Phoenix Group's annuity service - had by far its biggest bulk annuity volume in 2021 of £5.5bn, including two £1bn+ transactions.

Aon said Just Group's increase in volumes were driven by an increased willingness to take on full scheme deals, and Canada Life is also finalising a full scheme buyout proposition.

It said this means that, in 2022 and for the first time, all eight insurers will be able to offer full-scheme buyouts with member facing administration services.

Aon is a reaction to the increasing maturity of final salary schemes and a growing conviction over targeting buyout.

Hymans Robertson

Hymans Robertson confirmed that total pension scheme buy-in and buyout volumes reached £27.7bn in 2021 - the third highest year on record.

Its 2021 risk transfer report found that, after a slow start to 2021, £20.9bn of buy-ins and buyouts completed in the second half of the year, the second highest ever total for a six-month period ending on 31 December.

Buy-in and buyout volumes

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Source: Hymans Robertson

Hymans said 2021 was a successful year for defined benefit (DB) schemes looking to transfer risk to the insurance market, despite the continuing backdrop of the pandemic.

It said a steady increase in demand for small- and medium-sized transactions, along with transactions of over £1bn for Metalbox, Imperial Brands and Gallaher, created a busy period for buy-ins and buyouts in the second half of 2021.

The confirmed volume of £27.7bn took place across almost 100 transactions during 2021, with approximately 75% of that volume being in relation to buy-ins and the remaining 25% relating to buyouts.

Hymans Robertson head of risk transfer James Mullins commented: "A quiet start to 2021, combined with increased innovation in the longevity hedging space for non-pensioner members, led to some very attractive buy-in and buyout pricing for DB pension schemes who approached the market during 2021.

"Most of the insurers were behind their targets by mid-2021 and this created particularly strong competition in the second half of the year.  This was a key reason why the second half of 2021 was the second busiest ever six-month period for buy-ins and buyouts."

He added: "The rapid growth in demand for pension schemes to insure their risks, along with improved pension scheme funding levels, attractive insurer pricing and new alternative risk transfer options, means that we expect around £50bn a year of buy-ins and buyouts on average over the next teb years. That means that, by the end of 2031, £1trn of pension scheme liabilities will have been insured, covering five million members' benefits."


2021 saw a record volume of ‘core' bulk annuity deals of £1bn or under, 10% higher than any previous year, Mercer's analysis of the risk transfer market in 2021 has revealed.

The update, published today (17 March), showed that the market had, overall, written total bulk annuity premiums of £28.6bn across 157 deals in 2021, compared to premium volumes £31.8bn across 141 deals in 2020 and £43.8bn across 151 deals in 2019.

It said the (slightly) lower 2021 volumes were a direct result of fewer ‘jumbo' deals of over £1bn (three in 2021 compared with seven in 2020 and a record 11 in 2019); however, despite this, the total bulk annuity premiums followed the post-2018 ‘new normal' run rates of around £30bn a year.

Mercer said 2021 followed a similar trend to 2019 and 2020 - a relatively quiet first six months followed by a very busy second half of the year (H1 2021 saw only £8.7bn of bulk annuity premiums written). This trend looks set to be replicated in 2022 and will continue to influence the timing of schemes' market approaches, particularly where completing a deal within a defined timeframe (e.g. driven by a corporate accounting year-end) is important.

Looking at smaller bulk annuity deal sizes, Mercer said almost 65% of 2021 deals (100 deals) were below £100m in size, of which 28 were sub £10m; 30% more sub £100m deals (by number) than in 2020.

In addition, it said £15.3bn of longevity swaps were transacted in 2021 - the third highest year on record (down on £24.2bn in 2020 and £21.9bn in 2014 - but over 150% of the volume transacted in any other year to date).

Overall, it said 2021 saw £43.9bn of risk transfer deals across bulk annuities and longevity swaps, compared to £56.0bn in 2020 and £51.6bn in 2019.

Mercer head of risk transfer Andrew Ward said: "Welcome to the new normal! As we saw from last year, bulk annuities volumes of around £30bn per annum are here to stay, with a potential uptick in 2022 if some mega deals get done in H2.

"The continued strong growth in bulk annuities deals below £1bn demonstrates high and growing demand from maturing DB schemes wanting to take risk off the table and we were delighted to adviser on around a quarter of all transactions in 2021."

Ward added: "Over 2022, we expect to see £50-60bn of risk transfer deals, with a number of jumbo bulk annuity and longevity swap deals already in the market, continued strong demand from small-to-medium sized schemes, the first DB superfund deals on the horizon and alternative strategies such as capital-backed journey plans starting to play a part in schemes' risk transfer journey planning."

Mercer risk transfer team principal Ruth Ward noted there had also been increased levels of activity at the smaller end of the market during the past year. She said: "2021 offered strong proof that transaction-ready smaller schemes can and do find homes with UK life insurers, despite continued high-demand for bulk annuities from across the DB pension scheme universe."

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Analysis of insurers' 2021 results by Lane Clark & Peacock (LCP) shows that, despite a relatively muted start to the year, the UK pension risk transfer market grew strongly in the second half of the year to reach £43.9bn across buy-ins, buyouts, assured payment policies (APPs) and longevity swaps. This compares to £55.8bn in 2020.

For buy-in and buyouts in isolation, LCP said volumes reached £27.7bn in 2021, with £20bn of transactions completing in the second half of the year. It said this compares to £31.3bn in 2020.

LCP's analysis is based on the insurers' final reported results for 2021, including Rothesay's results, which were released today.

Key findings from LCP's analysis include:

  • Competition for buy-ins and buyouts has increased with five insurers securing a 10%+ market share in 2021, up from four in 2020 and three in 2019. The five were Aviva, L&G, PIC, Rothesay and Standard Life - each with £3bn or more of buy-ins/buyouts in 2021.
  • For the first year ever, Aviva wrote the highest buy-in/buyout volumes with £6.2bn (22% market share). Standard Life also had a record year with their volumes more than doubling to £5.5bn (20% market share). They were followed by L&G on £5.3bn[i] (19%), PIC on £4.7bn (17%) and Rothesay on £3bn (11%) - the three insurers that have historically dominated the market. Full figures are set out at the end of the release.
  • The largest single buy-in/buyout in 2021 was the £2.2bn full buy-in of the Metal Box Pension Scheme completed by PIC in October. The next two largest transactions were both completed by Standard Life: a £1.8bn pension buy-in with the Imperial Tobacco scheme and a £1.7bn full buy-in with the Gallaher scheme.
  • 2021 saw a continued shift towards mid-sized buy-ins/outs. Buy-ins/outs between £100m and £1bn have trebled since 2015 and now amount to over 33% of all deals. This was at the expense of smaller deals (below £100m) where deal numbers fell by a third over the same period. Only four buy-in/outs over £1bn completed in 2021, compared to seven in 2020 and 10 in 2019.
  • 2021 saw a further increase in full scheme transactions as affordability improved with rising scheme funding levels and insurers increasingly able to offer attractive pricing for non-pensioners. Two thirds of transaction volumes in 2021 included deferred members, compared to only a quarter five years ago.
  • Four longevity swaps were announced by UK schemes in 2021 totalling £15.3bn (FY 2020: six longevity swaps totalling £24.1bn) with a diverse range of intermediation approaches for accessing the reinsurance markets. A further £5.5bn longevity swap for the Lloyds Bank scheme was announced in early 2022.
  • In June 2021 L&G completed a £0.9bn APP with its own scheme, the third such transaction of its kind. Meanwhile, in November 2021, Clara Pensions completed the superfund assessment process with The Pensions Regulator, paving the way for the first schemes to transfer to a superfund in 2022.

LCP partner Imogen Cothay commented: "The Covid-19 pandemic led to a relatively muted start for the buy-in/out market in 2021 but activity surged later in the year with almost half of the whole year's £28bn of business closing in the final quarter. The past couple of years has been driven by mid-sized pension schemes with fewer mega transactions above £1bn.

"However, we are seeing plenty of interest from large schemes and as they take de-risking steps that will drive volumes to new heights."

LCP partner Charlie Finch added: "Looking ahead, turbulence in markets as global events unfold could lead to buy-in pricing opportunities, similar to the market dislocations in early 2020 driven by the Covid-19 pandemic."

He added insurer competition was also "intense".

Insurer competition is at its most intense in a decade with five insurers vying for top spot last year," he said. "Pricing is proving highly attractive as insurers hunt market share, helped by the rising yields on credit. The positive noises on reform to solvency II is also welcome news for insurers and is likely to lead to greater insurer capacity for schemes looking to de-risk through buy-ins and buyouts."

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[i] L&G also wrote a £925m APP in 2021. APPs are recognised in the volume figures if they are subsequently converted into buy-ins.

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