Aon has predicted “another busy year” for the longevity swap market in 2021, after 2020 witnessed an increased demand to hedge longevity risk, despite uncertainty around the impact of Covid-19 on future mortality rates.

The group's latest Risk Settlement Market Update described 2020 as a "strong year" for the longevity swap market, with over £24bn of publicly announced deals, compared with £11.8bn in 2019.

It also stated that longevity risk remains a "key concern for pension schemes", clarifying that whilst the ultimate impact of the pandemic remains uncertain, overall views on mortality improvements in the long-term have “not changed significantly”.

Considering this, it has predicted continued activity in the market as schemes look to hedge longevity risk, pointing out that the AXA UK Pension Scheme has already agreed a £3bn longevity swap with Hannover Re, which was also highlighted at the time as a “market first”.

However, the group has also predicted a change in trends, anticipating a resurgence in full scheme buyouts post-lockdown, as sponsoring employers put greater focus into key de-risking decisions.

Aon previously confirmed that the bulk annuity market had remained resilient despite the pandemic, becoming the second busiest year on record, with a total of £32bn in bulk annuity deals.

However, Aon has warned that capacity constraints may become more important over the next few years, considering the “rapid growth” in the market, stating that access to suitable backing assets for annuity books in sufficient volume may become a key factor in light of this.

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