UK-based consultants have estimated that bulk annuity transactions are expected to reach £25bn for the first half of 2023, marking it the busiest first half year on record.
The estimated value of bulk annuity transactions more than doubled from the same period last year, when it reached £12bn.
The total volume of the bulk annuity market reached £27.8bn for the whole of last year.
According to Imogen Cothay, partner at LCP, the bulk annuity market has “fundamentally changed” in the past 12 months, and the firm estimates that around 1,000 schemes are now already fully funded on buyout.
Cothay added that the first half of the year has been “extremely busy”. She said: “Already over £17bn of transactions have been announced, and final volumes could exceed £20bn once released later this summer. This would break the £17.6bn record set in 2019.”
Aon, Hymans Robertson, WTW and XPS Pensions Group all believe the transactions are likely to reach £25bn in the first half of the year, making it the busiest ever H1 on record.
Shelly Beard, managing director of WTW’s pension transactions team, said: “The bulk annuity market is likely to have reach nearly £25bn of liabilities insured in H1 2023 – this is double the H1 2022 volume and quadruple the equivalent H1 2021 figure.
“This figure is testament to a huge amount of hard work by trustees and sponsors, alongside insurers and advisers, to seize the opportunity to improve security for members on the back of recent funding level improvements.”
Beard added that a busier market does present some challenges as trustees have to be better prepared before approaching the market and be agile with timescales in order to maximise insurer engagement and optimise pricing.
That said, Beard pointed out that insurers have “risen admirably” to the challenge and as there are opportunities available for all sized and types of schemes.
However, Lara Desay, partner and risk transfer specialist at Hymans Robertson, believes there will be a need for a more targeted approach driven by scheme size.
She said: “For small schemes – those below £100m – approaching on an exclusive basis is now becoming a pre-requisite. Setting an appropriate price target relies heavily on having an all-encompassing view of market activity to understand where current market pricing lies and what adjustments are appropriate to reflect a scheme’s profile. Having an adviser with a strong understanding of the current market and knowing who is pricing competitively at any given time is important.”
She noted that the segment of the market for medium-sized schemes – between £100m and £1bn – is likely to garner strong interest from a wide range of insurers. “A two-round process may still be attractive at this size, but some insurers may prefer this to be reduced to a single round to “cut to the chase” and reduce the burden on their pricing team,” Desay explained.
“And the market for large schemes is seeing its largest ever flow of transactions over £1bn in size, around 20 deals at this size have already transacted or, are being quoted on in the market this year. This means securing insurer participation is no longer the given it once was. Key to getting strong participation is having an adviser that is able to demonstrate clarity and certainty over objectives and timescales,” she continued.
Desay added that there is rarely an “off the shelf” solution and each scheme will have its own nuances with “some adjustments” to processes needed to be adopted for transactions to be successful.
She said that being “willing and alert” to making adjustments would be “vital”.
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