The prevalence of ‘mega deals’ and “dramatic” growth in small-scheme transactions drove the record-breaking year in the bulk annuity market in 2023, according to Aon.

The consultancy’s latest UK Risk Settlement Market Update showed there were £49.1bn of liabilities secured in 2023, surpassing the previous high of £43.8bn set in 2019.

This activity surge was due to several ‘key drivers’, including improved scheme funding across the defined benefit (DB) scheme landscape.

Furthermore, there was a record number of large transactions, with 13 deals exceeding £1bn in 2023, amounting to £29.7bn in total.

These larger transactions were driven by several factors, including enhanced insurer capacity.

“Robust solvency capital positions within the insurance and reinsurance markets, coupled with ongoing capital efficiency efforts by annuity providers, have created significantly more capacity than in past years,” Aon stated.

Aon also observed growth in small-scheme bulk annuity deals, with a record 161 sub-£100m transactions during the year, which “challenges concerns” over the availability of cover for small schemes.

Small schemes were aided by several insurers launching ‘streamlined’ transaction processes specifically designed for smaller schemes, Aon said.

Meanwhile, in the longevity swap market, there were £10.3bn of publicly announced deals in 2023, down from £15.7bn in 2022.

“The reinsurance market has remained strong and robust with increased market capacity in recent years,” Aon noted.

“We have seen increased competition from reinsurers and this has resulted in longevity swaps proving to be an attractive option for medium and large schemes that wish to retain investment flexibility, while removing demographic risks that may be seen as unrewarded.”

Aon said that favourable market pension de-risking conditions were persisting in 2024, which could lead to another year of record-breaking activity in the UK bulk annuity market.

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