Record-breaking year
The newly released figures for H2 2023 revealed a 74% increase on transactions recorded in the same period a year earlier. They also represented a 32% increase on the £21.2bn of transactions in the first half of 2023. In total, transactions for the year to 31 December 2023 reached £49.1bn, an all-time high.
Likewise, the total number of transactions in 2023 also turned out to be a record breaker, with 226 deals taking place. The busier H2 saw 130 of these deals transacted.
Big deals dominate
What is behind this rise? One key contributor is large transactions. In 2023, the average size of deals was around £217m, though this value is heavily distorted by a few very large transactions.
Indeed, in the second half of 2023, more than 60% of the bulk annuity market by value came from just seven deals in excess of £1bn. Notable large deals included Rothesay’s £3.8bn buy-in for the Co-op Pension Scheme and L&G’s £4.8bn buy-in for the Boots Pension Scheme. Earlier in 2023, PIC completed the largest buy-in to date: a £6.2bn buy-in covering the liabilities of two of the RSA Group’s pension schemes.
Analysts expect this trend to continue for some time. “As they did in 2023, our expectation is that large transactions are likely to continue to drive market volumes in 2024 and beyond,” commented James Mullins of Hymans Robertson. “Over the next few months, we expect around 15 buy-in transactions in the range of £1bn-£2bn to come to market. This £30bn of transactions will join a material flow of sub-£1bn buy-ins and several-billion-pound mega transactions.”
Demands on insurers
In a bustling and competitive environment, insurers are now engaged in fierce competition for large deals. This focus on large transactions puts demands on insurers, especially their pricing, operations, investment and management teams.
To land significant deals, insurers need not only access to an abundance of capital but also attractive,
long-dated assets. Alongside this focus on major transactions, insurers are balancing the experience of their scheme’s membership.
Smaller players are streamlining
Although the big transactions command the most attention, it is not just the giant dealmakers who are going through a period of change.
At the smaller end of the market, many insurers are working on streamlining the quotation process. By doing so, many have improved efficiency and moved closer to an approach based on standardisation, with fewer bespoke quotes.
Moreover, the report notes that a greater share of smaller transactions is now being completed on an exclusive basis. That is to say that schemes are increasingly selecting only one insurer for their pricing rather than approaching the whole market.
Newcomers
Meanwhile, another noteworthy trend is the arrival of new players. The report suggests there could be more newcomers entering the market as the years progress. One notable acquisition involves Rothesay taking over the £6bn Scottish Widows in-force bulk annuity portfolio from Lloyds Banking Group. This transaction, should it get the necessary regulatory approval, would cover the benefits of around 42,000 pension scheme members.
What does 2024 have in store?
It is certainly a busy time for buy-ins and buy-outs. Going forward, the report offers a reminder of the need for the market to ‘continually recalibrate’ its thresholds for transaction sizes.
“Record transaction pipelines and activity are set to make 2024 yet another bumper year for the buy-in market,” Mullins added. Notably, “defined benefit schemes have continued to use their improved funding levels to target whole-scheme buy-ins.”