Small scheme bulk annuity deals increase amid 'favourable' market conditions - Aon

Favourable market dynamics in the first half of 2020 saw a "near 20 per cent" increase in the number of small bulk annuity transactions (sub-£100m) relative to recent years, analysis by Aon has found.

The firm predicted that this trend will likely "accelerate" throughout the rest of the year, noting that several factors have contributed to creating favourable market conditions for such transactions.

One such reason, according to the analysis, was that insurers are investing in technology and operational capacity at the smaller end of the market, in turn increasing supply for smaller schemes who are looking to de-risk.

The research also highlighted an increase in the use of streamlined auction processes for smaller transactions, stating that this was particularity helpful for smaller schemes, and had allowed them to "take advantage" of opportunities during recent market volatility.

Indeed, the company previously argued that the best pricing captured amid the pandemic was “among some of the most attractive seen in years”, whilst industry experts have also highlighted the ‘golden opportunities’ present in the bulk annuity market amid the pandemic.

Aon's analysis also noted that there has been “fewer jumbo transactions” compared to last year, when ‘mega deals’ dominated the market.

It emphasised that this has meant insurers have had more capital and manpower to deploy across a wider spectrum of transactions as a result.

Commenting on the findings, Aon partner, Stephen Purves, stated: "There has been a misconception that smaller schemes struggle to access competitive pricing from insurers, so it is really pleasing to see them taking advantage of these market opportunities and transacting in the first half of 2020.

“Attractive insurer pricing and increased insurer capacity for well-prepared schemes has completed the picture.

“A number of factors, including the impact of Covid-19, market volatility and an increased insurer capacity, have led to many more smaller transactions taking place.

“This is particularly so when compared to recent years in which larger transactions have dominated – and maybe it has changed the perception of the sort of schemes that should and can come to market.”

He continued: “Looking ahead, insurers are expecting this activity at the smaller end of the market to continue through to the end of the year.

“It’s clear that they are placing increased importance on good scheme preparation to maximise their interest and to ensure schemes are ready to trade when opportunities arise."

The findings are broadly in line with industry expectations from earlier this year, with Legal & General previously predicting a 25 per cent growth in small-to mid-sized deals despite Covid-19, and Lane Clark and Peacock estimating a 25 per cent increase in small scheme bulk annuity transactions for the year.

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