It has been another bumper year in the risk transfer market, with figures for 2021 showing £43.8bn of bulk annuities transferred and £15.2bn of longevity swaps.
Aon’s 2021 UK Risk Settlement Market update shows this was the third busiest year on record, behind 2019 and 2020.
While these figures were below previous peaks this was largely the result of fewer ‘jumbo’ deals – worth £1bn or more. However the figures show than in 2021 there was a record volume of ‘core’ bulk annuity deals of £1bn or under — 10 per cent higher than in any previous year.
The figures show that as in other years, there was a relatively quiet first six months followed by a very busy second half of the year.
Mercer says that 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 is important.
Looking at smaller bulk annuity deal sizes, Mercer points out that almost 65 per cent of 2021 deals (100 deals) were below £100m in size, of which 28 were sub £10m. It says there were 30 per cent more sub £100m deals (by number) than in 2020.
In total there were £15.3bn of longevity swaps were transacted in 2021 — again the third highest year on record.
Aon points out that this has been a record year for four insurers, with competition in the market increasing. Aon’s risk settlement group wrote 27 per cent of the bulk annuity market, the highest market share for any adviser in 2021.
Commenting on the figures Mercer’s head of risk transfer, Andrew Ward, said: “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.
“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.
“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.
“Significant interest rate rises and widening credit spreads since the start of 2022 will have resulted in improved funding levels for many schemes. “