The UK pension risk transfer market completed a “staggering” £49.1bn of buy-ins and buyouts in 2023, breaking the previous £43.8bn set in 2019, analysis from LCP has revealed.

The research showed that, in addition to this, £10.3bn of longevity swaps completed, and £0.6bn was transferred to Clara-Pensions in the UK’s first superfund transaction, taking total pension risk transfer over 2023 to £60.0bn.

These results were bolstered by two new entrants to the market, with M&G writing £0.9bn in deals since re-entering the market in 2023, while Royal London has completed two deals for their own schemes since announcing their re-entry to the market earlier this year.

LCP suggested that one further entrant is expected to join the market this year, with Rothesay’s purchase of Scottish Widows’ £6bn bulk annuity back book, which remains subject to regulatory approval, meaning that the number of buy-in/out market participants stands at nine insurers.

The past year also included an “unprecedented” number of giant transactions, with 11 buy-ins/buyouts totalling over £1bn, making up over half of the £49.1bn total, and beating the previous record of nine in 2019.

Individual deals also set new records, with the record for largest single buy-in transaction broken by RSA at £6.5bn in February and the record for largest scheme to reach full insurance broken by the British Steel Pension Scheme at £7.5bn in May.

Rothesay held the largest market share in 2023 (26 per cent), writing £12.7bn in buy-in and buyout deals, while L&G wrote £12bn, representing 24 per cent of the market share, and Pension Insurance Corporation wrote £6.9bn (14 per cent market share).

The past year was not only a record year for transaction volumes, as LCP's analysis revealed a "further step change" in activity levels, with over 250 transactions completing, a marking a 25 per cent increase on 2022, and "significantly higher" than the average 150 seen in the preceding eight years.

There has also been a "significant" increase in the number of full scheme transactions due to sustained improvements in DB funding levels, while pensioner-only buy-ins, historically the most popular route for schemes starting out on their de-risking journeys, comprised less than 5 per cent of volumes in 2023, down from around 75 per cent in 2016.

Commenting on the latest figures, LCP partner, Charlie Finch, said: “2023 saw several pension risk transfer records surpassed with buy-in/out annual volumes setting a new record of nearly £50bn, as a wave of pension demand crashed across the market driven by improved funding following the liability-driven investment (LDI) crisis.

"We are pleased to see that all five of our predictions for 2023 came to pass, including the first new entrants in six years. The new insurers have hit the ground running completing five transactions in the past six months and helping push buy-in/out annual volumes to their record level last year.

LCP principal, Ruth Ward, suggested that 2024 will bring "fresh challenges for schemes and insurers alike, with insurers reporting over 20 multi-billion-pound transactions seeking pricing – around double the 11 such transactions completing last year, itself a record".

"For schemes to stand out from the competition and secure competitive pricing, they must focus on how they present themselves – regardless of size – and a skilled specialist adviser is key to doing that successfully," she continued.

“The headlines are dominated by the giant transactions but it’s been really encouraging to see strong insurer participation at the smaller end of the market, with insurers continuing to invest in developing streamlined ways of processing small transactions and we have not (yet) observed any hardening of pricing."

Adding to this, Mercer partner and head of risk transfer, Andrew Ward, said that, despite the record-high activity, capacity concerns are not a concern, suggesting that both M&G and Royal London are expected to hit double figures by the end of the year.

“For the other insurers in the market it was interesting that all of them showed year-on-year growth in total volume of deals written of at least 25 per cent, with four insurers seeing growth of over 65 per cent compared to 2022 volumes," he stated.

"We don't see any insurer hitting their maximum capacity yet and are confident that the market has sufficient capacity to grow even further in 2024 and deal with the increased demand from better funded pension schemes looking to secure their members' benefits.”

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