The UK bulk annuity market recorded a total volume of £27.8bn in 2022 and experienced its fourth successive year where more than £25bn of business was written, according to Aon.

Rising market yields reduced the value attributed to pension scheme transactions, and the market may well have passed £35bn if yields had remained at the level they started at in 2022, the consultancy said.

This has left insurers with spare capital for transactions in 2023 and the key constraint for market size this year is likely to be the capacity of the teams at annuity providers to process transactions, it added.

“We expect 2023 to see the return of a number of multi-billion-pound full scheme transactions, with Royal & Sun Allowance already having concluded the largest bulk annuity transaction to date (£6.5bn), across two schemes) with PIC,” it stated.

Aon bulk annuity

Over 2022, the average transaction size was around £140m, comparable to 2021 (approximately £180m). This decline reflects the fall in the value of pension liabilities over 2022 from the impact of increasing yields, according to Aon.

While the five insurers writing the greatest volume remain the same as in 2021 (Legal & General, Standard Life, Aviva, Pension Insurance Corporation and Rothesay), there was a notable increase in the size range of transactions for Just Group, which wrote its record volume of bulk annuities in 2022 (£2.6bn) and has since announced its largest single transaction, a £513m full scheme transaction with GKN in February 2023.

LCP’s take on pension risk transfer

LCP’s numbers differ slightly, showing volumes reaching £28.1bn in 2022, compared to £27.7bn the previous year, with £16.1bn of transactions completing in the second half of the year, compared to £19.9bn for the second half of 2021.

According to the consultancy’s latest analysis of insurers’ 2022 results, LCP showed that the UK pension risk transfer market finished strongly in 2022 to reach £44.7bn across buy-ins, buyouts and longevity swaps, despite the dampening effect on volumes of dramatic increases in gilt yields in the second half of the year.

Charlie Finch, partner at LCP, said: “2022 was a strong year for UK pension risk transfer with the third highest volumes on record despite higher gilt yields and the market volatility following the LDI crisis. We are currently seeing a surge in demand for buy-ins/outs following dramatic improvements in buyout funding levels last year and we expect this to drive record-breaking volumes over 2023-2025.”

He anticipates growth in larger £1bn plus buy-ins this year as larger schemes assess buy-in options following the RSA Group schemes’ record-breaking £6.5bn buyin with Pension Insurance Corporation (PIC) last month for which LCP acted as lead transaction adviser to RSA and its parent, Intact.

Finch added that in response to these shifts in market dynamics, LCP has been innovating how it prepares and takes schemes to market, in addition to developing solutions that allow transactions to proceed in challenging conditions following the LDI crisis.

“Innovation will be key as the market adapts to higher activity and volume levels, whilst ensuring it can continue to serve schemes of all types and sizes,” he noted.

Hymans Robertson: ‘close to a record year’

Total pension scheme buy-in and buyout volumes reached £27.9bn in 2022 according to latest research from Hymans Robertson. As for the previous consultancies, Hymans Robertson also saw demand for transactions gathering pace during 2022 with market volatility resulting in a busy second half of the year.

According to Hymans Robertson, the total number of 2022 transactions was at the highest level for nearly 10 years. Had interest rates been comparable to prior years, then 2022 would have been “close to a record year” for the market, potentially beating the £43.8bn record set in 2019.

James Mullins, head of risk transfer at Hymans Robertson, said: “Despite market volatility and a year full of challenges for pension scheme trustees, the risk transfer market remained resilient and Q4 2022 in particular saw a flurry of activity as pension schemes captured excellent pricing opportunities at levels rarely seen before.”

With many pension schemes seeing significant improvements in their funding position, he continued, 2023 is set to be an extremely busy year for the industry. He expects insurers to be looking for innovative ways to adapt to the growing demand and increase buy-in and buyout volumes, whilst pension schemes will “need to be smarter in how they prepare and approach the market for buy-in quotations”.

To read the digital edition of IPE’s latest magazine click here