Aon: 2021 could be record year for UK risk settlement

Aon predicts that 2021 will also be another huge year – and potentially another record one – for the UK risk settlement industry.

The UK pension scheme risk settlement market hit a new record figure in 2020 and Aon has said that now all information on deals is available, 2021 is also expected to be another big year.

“Despite all the problems and a general lowering of expectations regarding deals, 2020 saw the UK pension scheme risk settlement market – bulk annuities plus longevity swaps – reach over £54 billion,” said Martin Bird, senior partner and head of Aon’s Risk Settlement Group.

This figure beats the record of £52 billion set the previous year and was achieved despite the initial dampening effect of the market having to cope with the pandemic.

“This result certainly proves the market’s resilience, as well as the real need for risk settlement by schemes and their increasing understanding of how to access the market,” he added.

“However, the market also changed with fewer jumbo deals than we saw in 2019, but a 50% increase in the transactions below £1 billion in size. That meant more small and mid-sized deals as well as increased numbers of pensioner buy-ins rather than full scheme buyouts. There was also a strong trend towards repeat buyer transactions, underlining that well-prepared schemes with nimble governance arrangements were particularly well placed to capture market opportunities.”

Bird continued: “In many ways, this is a sure sign of the market’s increasing maturity, of its understanding of how deals can be put together and of a significant improvement in streamlined transaction processes, which made them more attractive to insurers.

“Now in 2021, it seems certain that everything we have seen over the past year must have added to the drivers for pension schemes to seek risk settlement measures,” he added.

“The COVID-19 pandemic is potentially the largest combined economic and political shock to the UK since the immediate aftermath of the Second World War. In that context, it is not surprising that we are seeing huge early appetite from schemes, and our expectation is that 2021 could be another record-breaking year for the industry.”