Partner Insight: UK Risk Settlement Market

This time last year we reflected on a year that broke all records in the pension risk transfer market. So, coming into the new year 2023 was a tough act to follow. But 2024 did not fail to deliver, with more schemes successfully completing insurance transactions than ever before...

A bumper year

Despite the record breaking £49 billion total volumes insured during 2023, insurers came into 2024 disclosing record levels of solvency capital, ready to support another big year. While there are only a few days left to see how close we get to the £50 billion level, it is clear that the year has been another success, perhaps more notable though for the total number of deals completed, with fewer 'jumbo' deals in the market this year.

G4S, National Grid and NatWest have caught the headlines for the largest scheme deals this year, while at the smaller end of the market it has been particularly pleasing to see insurers providing capacity and resource to support so much activity. In the first half of 2024, 110 bulk annuity deals below £100 million were written - the highest number in the past 10 years and almost double the level of transactions of a similar size written in H1 2023. It is anticipated that the second half of the year will show a similar trend.

It's all about the planning

Improved funding levels over the past couple of years have continued to support a focus on full scheme transactions as schemes and sponsors have been keen to capitalise on favourable balance sheet positions. However, this has also shone a light on the need not only to be ‘data and benefit' ready, but also to be thoroughly prepared from an investment perspective. Getting schemes' assets into shape has been an essential ingredient in deal success this year, particularly where schemes have needed to manage out of legacy and illiquid asset portfolios, negotiate increasingly bespoke price lock portfolios and navigate increasingly complex transition processes as part of the overall move to insurance.

Never a dull day

We have seen several schemes successfully complete deals including some schemes who already had longevity swaps successfully convert them into bulk annuity structures, as well as innovate deals including the use of captives and superfunds, with Clara writing its first deals. So, it is good to see the market continuing to adapt to changing client needs.

On the topic of innovation, there was a significant focus on ‘member experience' seen as part of insurer selection processes. The tendency for pension schemes to provide options and IFA advice when members retire has become well-established in recent years, but this has historically fallen away at buyout. However, insurers are becoming increasingly flexible and accommodating – indeed, our survey at the start of the year showed that half the insurers in the market would consider making options at retirement available. While it is still early days on this, we are expecting this to be an important theme as we head into 2025.

What do we expect for 2025?

We are anticipating strong volumes again for 2025, with over 54 percent of schemes in Aon's latest 2024 survey saying that buyout is their long-term target. There are bulging pipelines across all sectors of the market, with the very smallest to the very largest schemes contemplating insurance deals of some shape or form.

To accommodate this demand, insurers and reinsurers are continuing to grow their teams. We have also seen three new insurers come to the UK bulk annuity market over the past 18 months, which is great news for supporting the ongoing level of demand.

Aside from continued innovation to support deals getting done, we also see very strong demand for post-transaction support, both in terms of bedding down new operational processes and data cleansing activity, or for many schemes in the next phase of their journey as they transition from buy-in to buyout and look to wind-up. This is a complex area which again requires significant planning and attention to detail.

We look forward to supporting clients with all the new challenges the New Year will bring.

But first, after such a busy 2024, our team is certainly looking forward to using the festive period to recharge, reflect on a year of many highlights, and re-set to go again in 2025. We wish you all a restful Christmas and New Year!

Further reading from the Aon Risk Settlement team