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Law360, London (March 1, 2021, 1:51 PM GMT) -- The value of U.K. pension insurance deals carried out in 2020 hit a record of £54 billion ($75 billion), according to new calculations by Aon PLC on Monday, as more companies seek to offload risks amid the pandemic.
The broker said the total value of pension "de-risking" transactions in 2020 exceeded the previous record of £52 billion in 2019. The London-based company said that the shock to the economy from the COVID-19 pandemic was likely to have driven demand last year.
"The COVID-19 pandemic is potentially the largest combined economic and political shock to the U.K. since the immediate aftermath of the Second World War," Martin Bird, senior partner and head of Aon's risk settlement group, said. "In that context, it is not surprising that we are seeing huge early appetite from schemes, and our expectation is that 2021 could be another record-breaking year for the industry."
The figure of £54 billion has been revised upward since an earlier estimate. Aon said in January that it believed — based on preliminary numbers — that around £50 billion in deals had been carried out last year.
Companies with defined benefit occupational saving schemes increasingly want insurance to protect them against shocks to the market or the risk that members will live longer than expected.
According to consultancy Hymans Robertson, approximately £300 billion of pension risks have been insured since the market took off in 2007, equivalent to approximately 17% of all defined benefit liabilities. The company said it expects the market to grow further, estimating that £1 trillion of pensions risk will have been insured by 2031.
But Aon said on Monday that although the value of liabilities insured last year rose, the number of "jumbo" deals of more than £1 billion fell in the same period.
Market volatility last year affected the cost of bulk annuity transactions in particular, pushing down prices by as much as 5% early in the pandemic. Some companies arranged framework deals with insurers, known as umbrella contracts, to quickly take advantage of affordable rates.
"There was also a strong trend towards repeat-buyer transactions, underlining that well-prepared schemes with nimble governance arrangements were particularly well placed to capture market opportunities," Bird said.
--Editing by Ed Harris.
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