Increased insurer capacity and appetite in 2022 could see the current transaction size record in the pension de-risking market broken by £10bn+ ‘mega’ transactions, analysis from LCP has suggested.

The consultancy noted that the UK buy-in and buyout market entered 2022 with “considerable momentum”, estimating a near-record close to 2021 as around £20bn of buy-ins and buyouts were completed in H2 2021.

It also suggested that insurer capacity is set to increase further in 2022, explaining that several insurers have the appetite and capability to write £10bn+ transactions, with the transaction size record of £4.7bn broken therefore expected to be broken this year.

Alongside this, the consultancy predicted a shake-up in the market leaders, noting that whilst Legal & General, Pension Insurance Corporation and Rothesay have typically dominated this market, Aviva is on track for a market share of over 20 per cent in 2021, while Standard Life has also been growing and is expected to have an increased presence in 2022.

Pension schemes will also have increased options in 2022, as LCP pointed out that further market capacity will be provided by superfunds, with the first transactions expected this year after Clara Pensions passed The Pensions Regulator's assessment in 2021.

However, LCP noted that the regulator's guidance called for such transfers to be largely restricted to schemes with stressed sponsors where full buyout will not be feasible, clarifying that, for the time being, superfunds are therefore likely to remain a relatively small part of the overall risk transfer market.

LCP partner, Charlie Finch, commented: “The good news for schemes going into 2022 is that insurer capacity for buy-ins and buyouts is rising with competition between insurers remaining fierce.

“After a near record-breaking second half to 2021, we are expecting activity to increase in 2022 reaching £30-50bn and believe the transaction size record could be broken.

“Our message to schemes is to have a clear strategic plan and consider if there are opportunities to take down risk on attractive terms through a buy-in for part of their liabilities.

"Changing market dynamics as insurers vie for transactions and continued market volatility could provide attractive pricing windows over 2022.”

The consultancy previously predicted that a wave of demand could bring up to £650bn of buy-ins and buyouts over the next decade, estimating annual volumes of between £30-50bn each year up to 2025.

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