The defined benefit (DB) de-risking market is on track to hit record volumes of £45bn-£60bn in 2023, with as many as 15 £1bn plus transactions expected, analysis from LCP has found.

LCP’s latest pensions de-risking update suggested that there will be “no let-up” in de-risking activity, with the firm estimating that around one in five, around 1,000 DB schemes, are already funded on a buyout basis.

The firm said that there has been a “step change” in the de-risking market, revealing that despite the capacity crunch at insurers, transaction opportunities continue to be “fiercely contested” where schemes have been able to present optimally to insurers.

In particular, LCP revealed that insurers are reporting giant £1bn+ deals coming to market at “unprecedented rates”, with around 15 indicated to be lining up to transact this year, which would eclipse the previous record set in 2019, when 10 £1bn+ deals were transacted.

According to LCP’s analysis, giant deal activity at this level is expected to drive record bulk annuity volumes of £45bn-£60bn for the year.

Indeed, the firm pointed out that 2023 has already started strongly with the largest ever buy-in for RSA, as well as the £2.7bn British Steel Pension Scheme transaction, taking the total deals confirmed year-to-date to over £13bn.

However, the firm argued that larger schemes should be clear on their “key asks” of insurers and the underlying rationale, emphasising that this is certainly not the market for complex requests that are not well thought through.

In addition to this, LCP clarified that insurer capacity is still being made available for smaller (sub £100m) deals, predicting ad-hoc pricing opportunities over 2023 for well-prepared and nimble smaller/mid-sized deals advised by specialist de-risking advisers with a “close ear to the market”, suggesting that, at the point a larger deal goes exclusive, there will be one or more disappointed insurers looking to rapidly redeploy higher-yielding assets to other deals waiting in the wings.

Commenting on LCP’s analysis, Standard Life managing director of DB solutions and reinsurance, Kunal Sood, agreed that the BPA market is living up to the expectations set earlier in the year, with market volumes of £45bn+ looking “very achievable”.

“DB funding schemes have generally benefited from a combination of factors over the last year, including a rise in gilt yields, slowing longevity improvements, an increase technical provisions and sponsors stepping up deficit funding,” he continued.

“All of this has led to a surge in market demand, and at Standard Life, we have been actively engaging in a number of discussions to help schemes achieve the best solutions for their members.”

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