Bulk annuity transactions could reach record highs in 2022 if the right conditions are in place and depending on how quickly companies settle down to a normal operating environment, according to Aon’s latest UK Risk Settlement Market Update.

The group noted that the UK bulk annuity market experienced a relatively subdued H1 2021, with £7.7bn of transactions written in this period, reflecting a “slower pipeline of transactions in early 2021 after a flurry of deals in late 2020”.

Nearly two-thirds (65 per cent) of all deals written in the first half of 2021 were under £100m.

Aon predicted that a total of around £25bn of bulk annuity transactions will be written this year, in line with previous industry predictions, with strong momentum predicted to carry over into 2022 trade.

The firm explained that risk management continues to be a major concern for schemes and sponsors, exacerbated by the pandemic, with other factors, such as rising scheme funding levels and attractive insurer pricing, also helping to drive market volume, suggesting a “busy end to the year”.

“Quite how high 2022 volumes reach will depend partly on how quickly companies settle down to a normal operating environment - but the right conditions might lead to a new record year in 2022,” it stated.

The first half of 2021 was “strong” for longevity swaps, however, with £12.7bn worth of deals completed.

A total of £24bn of publicised swaps were written in 2020, according to Aon, a “significant rise” on 2019 and 2018, when £11.8bn and £4.7bn of publicised swaps were written respectively.

The group said that longevity swaps have continued to be popular for pension schemes over the past couple of years, with their increased flexibility attracting more mid-sized pension schemes to consider this as a risk settlement option.

“It is also notable that swaps have been particularly attractive in the financial sector where sponsor capital considerations play an important role in decision making," it stated.

“Given the uncertainty of the impact of Covid-19 on long-term mortality, it is no surprise that more schemes are looking to hedge longevity risk.”

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