The next 12 months could bring a “flurry” of activity in the buy-in and buyout markets as defined benefit (DB) pension schemes look to accelerate their de-risking plans amid increased affordability in the market, analysis from LCP has suggested.

The consultancy noted that early 2022 had already seen a big jump in funding levels, with some schemes reporting an increase of over 5 per cent, and many looking to reduce investment risk, extend existing buy-ins or explore full scheme insurance, as a result.

Furthermore, whilst geopolitical events have caused turbulence in the global markets, LCP suggested that this could create a period of favourable insurer pricing, not dissimilar to the brief period in the wake of the initial pandemic in early 2020.

This has been compounded by insurer competition being at its most intense in a decade, with previous research from LCP showing that there were five insurers vying for top spot and each securing a market share of over 10 per cent in 2021, up from four insurers in 2020 and three in 2019.

The firm also suggested that the upcoming Solvency II reforms could help to contain upward pressure on pricing due to the increased demand.

In particular, LCP suggested that the key proposed changes under these reforms are expected to be helpful for insurers’ capacity to write increased volumes at current pricing levels, arguing that this could prove "vital" if market volumes do grow rapidly as projected.

LCP partner, Charlie Finch, commented: “Many schemes have seen de-risking opportunities emerge over 2022 on the back of a big jump in buy-out funding levels.

“As schemes find themselves ahead on their journey plans, it is important to review the preparatory steps they have planned and whether work should be accelerated. Careful preparation of benefits and data is particularly key to obtaining favourable terms and pricing.

"The first half of 2022 has seen relatively modest volumes, but this could prove to be the calm before the storm with a flurry of activity over the second half of the year.

“Improved affordability is likely to further accelerate activity into 2023. It’s vital that schemes have planned out their strategy carefully as they look ahead to when they will approach the insurance market.”

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