The risk settlement market, including both bulk annuity deals and longevity swaps, could hit £50bn by the end of 2020, Aon has predicted.

The firm noted that, despite the difficulties faced by pension schemes this year, final volumes could make 2020 a near-record year for de-risking deals.

Last year (2019) saw the market hit record levels, when around £53bn worth of transactions were completed.

Aon’s risk settlement team said that it has seen fluctuating levels of market activity during the first nine months of 2020, and it expected to see a “late surge” in deal activity before the end of the year.

“Over £25bn of transactions took place in the first half of this year, across both the bulk annuity and longevity swap markets,” commented Aon partner, Mike Edwards.

"That is clear evidence of the resilience of this market, of pension schemes’ need for these solutions and of the way that the market has developed in recent years.

“However, Q3 was busy for the market and we also know that significant insurer and reinsurer appetite remains for closing further transactions before the end of the year. Market timing has been a key theme throughout 2020, with very attractive pricing available to those schemes that have been ready to act.”

Edwards noted that some of the “inevitable market uncertainty”, driven by the US election and Brexit negotiations, will mean that schemes will need to take a “robust approach” to get transactions over the line.

Aon partner, Stephen Purves, added: “The risk settlement market has never had challenges like it’s had in 2020. However, the resilience of the industry and its ability to quickly adapt to the challenges faced this year has meant that the momentum of transferring risk to insurers and reinsurers has continued at pace.

“It also shows that these kinds of insurance-based risk reduction exercises are no longer seen as special projects for pension schemes but something which they view both as achievable and as a priority. Schemes of all sizes are able to capture some fantastic pricing opportunities along the way."

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