Bulk annuities sales have proved to be resilient despite difficult market conditions, with almost £13bn of business placed in the first half of this year.
According to Aon this is the fourth highest figure for a six month period since it began collating this information.
This more buoyant figures comes despite a number of projects remaining on hold, due to challenges created by the Covid-19 pandemic.
Aon said that this used to be the typical market size for a whole year, before the growth in the market in 2018/19 – fuelled mainly by some large full scheme buyouts.
It says in contrast 2020 has so far been dominated by pensioner transaction. In many schemes these can be done without new funding from the sponsor. Subject to transaction timing and positioning these are possible without adverse funding impacts.
Looking at the transactions made, Aon said the biggest deals were by the Co-op scheme – which placed £2.8bn of pensioner buy-ins across two transactions each with Aviva and PIC, advised by Aon, and the Merchant Navy Officers Pension Scheme, whose £1.6bn buy-in with PIC followed several previous annuity purchases.
Aon points out that market volatility will continue to create asset opportunities for insurers, giving attractive pricing for schemes ready to transact.
It said market volatility in March put some transactions on hold, partly due to prohibitive trading costs for bonds. However normal trading had returned by May and most stalled transactions subsequently resumed.
It adds that insurers’ solvency positions remain strong, with many raising fresh capital this year to give further protection and taking new measures to hedge their financial position – so limiting short-term downsize risk further than before.
Aon says that insurers have internal teams sourcing assets internally for backing annuities – in some cases the assets relate to their own mortgages or other products. This means they have available assets and spare capital to back new deals: so with a temporary fall-off in multi-billion buyouts, small to midsize schemes have an opportunity to access these.
Aon adds that more than ever, the post-lockdown environment has demonstrated the need for rapid decisions in the current very dynamic market, in order to capture the best opportunities for pricing and for a smooth asset transfer.
Recent transactions have been characterised by schemes embracing virtual meetings and new technology, usually arranged with little notice, and establishing clear practical decision-making processes.
While the same is true of the insurer teams, pension schemes have perhaps not had as consistent a reputation for nimbleness before. Aon describes this positive drive forward in scheme practices from the outset of lockdown as ”remarkable” and says it is something it expects to be maintained for the future.
