UK defined benefit schemes completed £43.9bn (€52.2bn) worth of pension risk transfer deals in 2021 across buy-ins, buyouts, longevity swaps and Assured Payment Policies (APPs), according to consultancies’ analysis of insurers’ annual results.
This compares with roughly £56bn in 2020.
Just considering bulk annuities, volumes reached £28.6bn, or £27.7bn if you exclude a £925m APP from Legal & General, as Hymans Robertson and LCP have done. This compares with £31.3bn-£31.9bn in 2020, depending on the consultancy.
Charlie Finch, partner at LCP, told IPE the consultancy had given the treatment of APPs a lot of thought, and made its approach clear in its press release about 2021 volumes. It said it recognised APPs in bulk annuity volume figures if they are subsequently converted into buy-ins.
APP is a de-risking solution developed by Legal & General that selectively insures against investment-related risks such as changes in asset yields, interest rates and inflation. Longevity and wider demographic risk protection can be added subsequently through conversion to a bulk annuity, but are not covered by an APP.
Four longevity swaps were announced in 2021 totalling some £15.3bn.
A large chunk of the 2021 bulk annuity deal volume came in the second half of the year. The total volume reflected fewer multi-billion opportunities being available, said Aon.
There were three bulk annuity deals clearly in excess of £1bn – Metal Box for £2.2bn, Imperial Tobacco £1.79bn, and Gallaher £1.68bn – plus a £1bn deal for Pearl Group. In 2020 there were seven so-called ‘jumbo’ deals.
“Insurer competition is at its most intense in a decade with five insurers vying for top spot last year”
Charlie Finch, partner at LCP
Mercer highlighted that there was a record volume of “core” bulk annuity deals of £1bn or under in 2021, 10% more than any previous year.
“Welcome to the new normal,” said Mercer’s head of risk transfer, Andrew Ward, about the strong risk transfer year as a whole. “As we saw from last year, bulk annuities volumes of around £30bn p.a. are here to stay, with a potential uptick in 2022 if some mega deals get done in H2.”
Buy-ins/outs between £100m and £1bn have trebled since 2015 and now amount to over 33% of all deals, according to LCP. The number of deals below £100m fell by a third over the same period.
Competition for buy-ins and buyouts has increased, with LCP highlighting that five insurers secured a 10%+ market share in 2021, up from four in 2020 and three in 2019. The five were Aviva, L&G, Pension Insurance Corporation, Rothesay and Standard Life, each with £3bn or more of deals.
“Insurer competition is at its most intense in a decade with five insurers vying for top spot last year,” said LCP’s Finch. “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.”
According to Aon, in 2022 for the first time all eight insurers will be able to offer full-scheme buyouts with member-facing administration services, “a reaction to the increasing maturity of final salary schemes and a growing conviction over targeting buyout”.
Volumes of risk settlement transactions (£bn)
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