LCP is predicting that 2022 could potentially see ‘mega’ transactions breaking the current transaction size record as insurers increase their capacity and appetite. They also see potential shifts in the market dynamics in 2022 as the first superfund transfer completes, new insurer accounting standards come into force and competition between insurers remains fierce.  

LCP’s views on the dynamics and new trends that might shake up the market in 2022 are as follows: 

• The buy-in and buy-out market in the UK enters 2022 with considerable momentum. LCP’s analysis suggests there was a near record close to 2021 with around £20bn of buy-ins / outs completing in the second half of the year. Only 2019 had a larger second half.  Total volumes for 2021 are set to reach around £30bn after a relatively subdued first half at £7.7bn*. 
• In their recent pension de-risking report, LCP predicted a wave of demand of up to £650bn of buy-ins and buy-outs over the next decade, with annual volumes of between £30-50bn each year up to 2025 and the potential for significantly larger volumes beyond 2025 (or earlier if employers accelerate cash funding to support transactions).  LCP expects 2022 will follow this trend with insurers reporting heathy pipelines. 
• LCP is expecting a shake-up in the market leaders.  Since the market first reached £10bn in 2014, it has been dominated by Legal & General, Pension Insurance Corporation and Rothesay. The last couple of years has seen Aviva break into the leading group, with Aviva on track for a market share of over 20% in 2021. Standard Life (part of Phoenix Group) has been growing their proposition and we expect to see an increased presence in the market this year. 
• Insurer capacity has increased going into 2022, with more capacity available to write the very largest transactions. Several insurers have the appetite and capability to write £10bn+ transactions and we believe we could see the transaction size record of £4.7bn broken in 2022. 
• From 2023, the new IFRS17 accounting standard for insurers is likely to change the way that insurers account for bulk annuity business, and the transition into the new accounting regime has the potential to impact market dynamics as we proceed through the year.  
• Further market capacity will be provided by superfunds.  Clara Pensions was granted the green light by the Pensions Regulator in November and the first ‘superfund’ transfers are expected in 2022. Under the Pensions Regulator’s guidance such transfers are largely restricted to schemes with stressed sponsors where full buy-out will not be feasible. So, for the time being, superfunds are likely to remain a relatively small part of the overall risk transfer market.   

Charlie Finch, Partner at LCP, commented: “The good news for schemes going into 2022 is that insurer capacity for buy-ins and buy-outs 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.” 

*This includes £1bn of Assured Premium Products written by L&G.