Isio predicts record deals for medium-sized pension schemes considering a risk settlement transaction in the second half of 2024 but notes potential volume dips due to fewer large transactions.
The number of transactions increased significantly last year and Isio anticipates a record number of agreements in 2024, but volumes may be lower due to fewer jumbo transactions.
According to Isio, this could increase demand for mid-sized schemes, resulting in more favourable pricing.
Isio advised 12 small and medium-sized pension systems on risk settlements in early 2024, showing a high demand. The 12 schemes, which range in size from £3 million to hundreds of millions of pounds, are spread across seven insurers.
Isio says it anticipates long-term market expansion, based on a small number of ‘jumbo’ deals. Isio’s insurance professionals advise schemes of all sizes on the advantages of insurance over alternative options, such as purposeful run-on.
Isio risk settlement director Karen Gainsford says: “The busy end to 2023 has continued into 2024. But the headlines too often conflate the number of transactions taking place with overall volumes, and while we are on course for a record year, the picture is more nuanced.
“The number of schemes over £1bn seeking bulk annuity transactions is now easily into double digits, with a number of these having the potential to surpass the largest bulk annuity transaction to date – £6.5bn between the RSA schemes and PIC in 2023. However, this means the fate of a handful of schemes will likely drive whether overall volumes continue to grow in 2024 and beyond.
“If some of the largest deals do not proceed, we would expect increased competition for mid-sized schemes later this year, particularly with new entrants seeking to establish themselves in the market. This could be great news for schemes who are close to affording insurance. With the right tailoring, schemes of all sizes can get insurer engagement and achieve a successful transaction.”
Isio insurance partner Steve Robinson says: “It is important scheme trustees and sponsors consider upfront whether insurance is right for them under a range of scenarios. Run-on may be the right answer for those who are fully aware and accepting of the downside risks.
“The insurance environment remains very competitive and the presence of new entrants is great news. Market pricing is heavily influenced by supply and demand so should some of the larger deals in the pipeline not transact there will be great opportunities for those schemes that are ready”.
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