The UK pensions risk transfer (PRT) market is on track for another bumper year, however, consultants expect to see lower volumes but with a higher number of transactions compared to last year, as large pension funds pause and explore run on.
The final number of transactions and volume will not be known until early-mid September when all insurers publish their half year results, however LCP said the year’s second half volumes are expected to be “significantly” higher than the first half, with total volumes around the lower end of the £40-50bn range as predicted at the beginning of the year.
While small transactions have been gaining momentum, there have also been a significant number of large transactions so far this year, which include the £4.3bn buy-in for the Rolls-Royce UK Pension Fund with Pension Insurance Corporation (PIC), the £1.9bn buy-in for the MMC UK Pension Fund with Standard Life, and the £900m buy-in for the National Grid UK Pension Fund with Rothesay.
LCP expects a further 10 transactions over the £1bn mark over the next 12 months, which could be a big driver of final full-year volumes.
Mike Edwards, partner in the risk settlement group at Aon, also expects a “flurry” of large transactions in the second half of the year. However, he noted that multi-billion-pound deals require years of preparation, including investment restructuring and careful unwinding of illiquid assets to avoid costly discounts.
Gemma Millington, senior consultant in pensions team at WTW, said that approximately £20bn of business was written across the bulk annuity and longevity swap markets in the first half of the year, which is below WTW’s initial forecasts of £50bn (bulk annuities) and £20bn (longevity swaps) for the full year.
However, she pointed to a strong pipeline and increased activity in July, saying the absence of “mega” deals had tempered volumes but not overall market strength.
Others suggest that the first half of the year has seen a more muted activity in terms of volumes compared to previous years.
Lara Desay, head of risk transfer at Hymans Robertson, said that so far, around £12bn was transacted by insurers. She has acknowledged the second half is likely to be busier, however, she still expects the year to close at around the £40bn mark – compared to £48bn in 2024.
Desay added that despite the lower volume levels, the number of transactions completed has remained at a high end, suggesting the market is on course to break records by the end of the year and pass the 300 mark in terms of total transactions completed.
Harry Harper, partner in the risk settlement team at XPS Group, highlighted that there were 166 transactions so far this year, compared to 132 transactions completed in the first half of 2024, and expects the number to reach as high as 370 by the end of the year, a 25% increase on last year’s transaction numbers.
Harper agreed with Desay that despite the increasing number of pension funds purchasing bulk annuities, total premiums charged are reducing.
He has attributed this reduction to government surplus extraction legislation, which would make it easier for sponsoring employers to benefit from surplus in their schemes if they continue to run them on. This, Harper said, is causing a number of larger schemes in the industry to pause and consider their options, while smaller pension funds that don’t have economies of scale to run on remain committed to buyout.
Similarly to Desay, Harper only expects around £40bn of liabilities to transact by the end of 2025.
Attractive market
The strong expected demand in the UK BPA market over the coming decade (£400bn to £600bn) has led to significant investment by third parties keen to participate in the UK market, particularly US asset managers with four significant announcements over the first half of the year.
These include the launch of Blumont Annuity Company by Brookfield, Athora’s acquisition of PIC, Brookfield Wealth Solution’s acquisition of Just Group, and the strategic partnership between Legal & General and Blackstone.
LCP’s Ward said: “This is a robust vote of confidence in the market as increasing numbers of well-funded UK pension schemes seek to insure their defined benefit liabilities. These schemes are benefiting from attractive current buy-in pricing driven by strong competition.”
Aon’s Edwards agreed that these announcements are “further proof” of the confidence in the UK PRT market and its prospects for continued growth.
He said: “It will be intriguing to see how the competitive landscape is impacted going forward.”
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