Strong insurer solvency levels set to boost pension risk transfer market in H2

"Strong" solvency levels amongst UK insurers are expected to help boost the UK pension risk settlement market in the second half of 2024, analysis from Aon has suggested.

Following the publication of insurers’ latest annual returns, Aon pointed out that solvency levels remain "strong", with "ample headroom" to support significant new business volumes.

In its latest risk settlement market update, the firm noted that whilst most insurers are reporting slightly lower solvency coverage at year-end 2023 compared to the previous year, this largely reflects some return to normality following unusually high positions, primarily driven by favourable market conditions towards the end of 2022.

It also explained that while 2023 saw some capital strain from a record year of market volumes, in most cases without a need for raising new capital to support it, insurer balance sheets typically remain around 200 percent, comfortably higher than target operating level.

Aon highlighted this as an indication of the ability to continue to write "very significant" levels of new business.

Indeed, Aon senior partner and head of the risk settlement team, Martin Bird, argued that "with insurer balance sheets remaining so well capitalised, we can be sure that they – and their shareholders – will be keen to see their war chests put to use supporting new business in the rest of the year and into early 2025.”

In addition to strong solvency levels amongst existing insurers, Bird noted that newer, and expected new, entrants to the bulk annuity market are likely to be "especially aggressive" on pricing as they seek to establish a foothold in the market, which will further support competition and overall capacity.

"This is great news for the market, and in particular for smaller schemes who may well be the beneficiaries of that," he said. "They will offer the best opportunity to make an early impact.”

He added: “Experience tells us that there are several ‘levers’ that affect the risk settlement market and changes in any of them always affect how it operates from year to year or even within 12-month periods.

"While the market has been healthy in the first half of this year, it has been relatively slow compared to 2023 and may need a spectacular second half to match last year's total volumes."

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