Bulk annuity activity by UK pension schemes is likely to pick up after a relatively slow start to the year that instead saw strong deal flow driven by insurers’ appetite to re-insure risk, according to consultancy Aon Hewitt.

Bulk annuity transactions worth around £2.7bn (€4.6bn) were placed in the first half of 2016, compared with £4.4bn in the same period in 2015, it said.

This is partly because new auctions need to develop after “a lot” of business was placed in the last quarter of 2015, according to the consultancy.

However, it noted that the second half of the year has got off to a strong start in the risk settlement market, citing deals such as buy-ins by ICI and Pilkington pension schemes and a longevity swap by the UK’s electricity sector pension fund.

Like other market participants, it said that bulk annuity pricing is favourable for pension schemes.

Still, it noted that in the first half of the year much of the risk settlement deal flow in the first half of the year has been from the insurance market rather than from high levels of activity from pension schemes directly.

According to Aon Hewitt, this insurer-driven business involved longevity reinsurance deals and back-book of annuity business.

The latter is where insurers purchase blocks of in-force annuities as some insurers decide they would prefer to shed their exposure to annuities in light of the Solvency II framework.

Including deals involving company pension schemes, a total of around £12.1bn of bulk policies were transacted in the first half of the year, according to the consultancy.

It said that there remains “substantial” market capacity for pension schemes to transfer risk despite the back-book, and that the hope is that the exit from the UK bulk annuity market by Prudential “will not impact heavily on pricing”.

Looking ahead to 10 years from now, consultancy Hymans Robertson last week said that the bulk annuity market is set to experience a “capacity crunch”.