Bulk annuity transactions total £12.7bn in H1 2020

The total value of bulk annuity transactions in the first six months of 2020 reached £12.7bn, despite challenging market conditions amid the Covid-19 pandemic, Aon analysis has revealed.

This was down by £4.8bn in comparison to H1 2019, but up by £4.9bn compared to H1 2018.

Aon noted that whilst some deals remain on hold, this is the fourth highest half year on record.

The ongoing market volatility could create asset opportunities for insurers, according to Aon, giving attractive pricing for schemes ready to transact.

Although 2019’s record-breaking year was fuelled by large full scheme buyouts, 2020 has been dominated by pensioner transactions so far.

Aon stated that, in many schemes, these deals can be done without new funding from the sponsor and, subject to transaction timing and positioning, are possible “without adverse funding impacts”.

Some of the largest transactions in H1 2020 were the Co-op pension scheme's buy-ins with Aviva and PIC for a combined total of £2.8bn, and the Merchant Navy Officers Pension Scheme's £1.6bn buy-in with PIC following several previous annuity purchases.

According to Aon, the high market volatility in March put some business on hold but normal trading resumed by May and most deals that were put on hold resumed.

“Several have disclosed that, while they have seen some limited downgrading of the credit ratings of their bond investments, no defaults have yet occurred,” the report stated.

“The insurers have internal teams sourcing assets internally for backing annuities – in some cases the assets relate to their own mortgages or other products.

“This means they have available assets and spare capital to back new deals: so, with a temporary fall-off in multi-billion buyouts, small to midsize schemes have an opportunity to access these.”

Aon noted that recent bulk annuity transactions had seen schemes embracing virtual meetings and new technology, demonstrating the need for rapid decisions in the dynamic post-lockdown market.

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