In the first half of 2022, the UK bulk annuity market saw £12bn of business written across 78 transactions, Aon’s latest UK risk settlement market update reveals.
The consultancy said, as in most years, it expected a higher volume of deals for the second half - adding it expected 2022 to be the fourth year in a row that the market surpasses the £25bn mark for bulk annuities.
It said the first half of 2022 still marked a significant step-up from the first half of 2021, when 60 transactions were written covering £7.7bn of liabilities, as the market recovered from the effects of prolonged lockdowns and the resulting economic uncertainty.
Aon said a number of transactions in the market are particularly complex in terms of the risks being transferred, which is taking up significant insurer resource. It said this is influencing short-term case selection, with many insurers seeking to add simpler cases in what remains of 2022.
It said most new auctions arriving in the market are for full scheme transactions - as opposed, for example, to, a pensioner only buy-in - and 75% of all deals written in the first half of 2022 were full-scheme deals. It said this has been driven by rising funding levels across schemes as gilt yields continue to rise, noting that the schemes approaching the annuity market still tend to be those that are better funded or more mature.
Despite this, Aon said volumes in the second half would be tempered by further yield rises, which have reduced the value of any individual transactions.
It also said that, while pricing is generally at a favourable level compared with the recent past, the continued market volatility can make it harder to capture and so, as ever, the best prepared schemes are most likely to take advantage of attractive pricing.
It said: "The volatility seen since 23 September could impact transaction volumes to an extent - in particular perhaps pausing some pensioner buy-ins where the level of available assets for de-risking is temporarily more uncertain.
"It may also (from market yield movements) reduce their values. At present we are expecting most processes to conclude, but in some cases to reset timings."
Longevity swap market
In the longevity swap market, 2022 has seen a similar first half to 2021, with £6bn of publicly announced deals, covering two transactions with two reinsurers - the £5.5bn Lloyds Banking Group Pension Scheme deal with SCOR and the £500m UBS Pension Schemes deal with Canada Life Re.
Aon said it expected more longevity swaps to be disclosed for 2022, and was aware of some completed transactions not yet in the public domain.
Outlook for 2023
Aon said bulk annuity pricing remained attractive, despite the volatility of the economic environment, creating more challenges to locking into a good price.
It said, in 2022, to date, only two transactions in excess of £1bn have been disclosed (amounting to £3.4bn), following four such transactions in 2021 (amounting to £6.6bn).
By contrast, Aon said it was aware of a "strong pipeline of multi-billion-pound cases" either already in or approaching the market and looking to transact in 2023. It said, if these all come to fruition, it expected that next year's market volume will pass the 2019 record.
Aon said: "The increased level of demand could put upward pressure on pricing levels given limited asset availability and insurer resource. However, there are also positive headwinds for pricing, including the UK reforms of Solvency II potentially coming into force, although we will have to wait and see the detail to be sure of the impact on the market."
