Risk settlement market expected to surpass £50bn in 2020

The UK risk settlement market has still “thrived” in 2020 and is expected to reach over £50bn, despite having seen fewer mega deals than last year, according to Aon.

The provider said mid-sized and smaller schemes had been increasingly active and were taking advantage of spare capacity and had leveraged some of the innovations from the largest transactions of 2019.

Aon partner, John Baines, said: “Nothing much has been ordinary or gone to plan in any market during 2020 and the risk settlement market is not necessarily an exception to that.

"Even so, we still expect it to reach over £50bn by the year’s end – and this is despite the lack of the jumbo transactions that we saw last year.”

The largest transaction announced so far in the calendar year has been £2bn, while 2019 saw the emergence of several transactions worth more than £2.5bn, including those from Rolls Royce, Asda, National Grid and Telent.

Consequently, Aon commented that the lessons from these “jumbo transactions” has filtered down to be used by schemes of all sizes which have transacted in 2020.

Baines said: “One of the hallmarks of 2020 has been the smartness and adaptability of mid-sized transactions in learning from and embracing the innovations that went into the major transactions of last year.

“There’s often been talk in the pensions industry of innovation being driven by the larger transactions. That has never been truer than in recent years, with schemes able to leverage the scale of transactions and insurer appetite, in order to push the boundaries of what's possible in the market. We saw that in several of our projects last year, which benefited schemes in both pricing and terms.”

Aon partner, Stephen Purves, said: “While we are aware of some schemes approaching the market without clarity on the specific aims of the transaction they are pursuing, that is becoming much less common and it’s helping schemes to get the results they need by clearing space in the market.

“It also accounts for the growth in the number of small schemes moving to buyout which we have seen in the first 10 months of this year - and which we expect to continue into 2021.”

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