The value of U.K. risk transfer deals increased 8.5% to £56 billion ($76 billion) in 2020 as sponsors seized on opportunities to insure liabilities afforded by wider credit spreads.
A record year for longevity swaps — at £24.2 billion — drove total deal values higher, consultants said Friday. In 2019, longevity swaps accounted for £10.8 billion of a total £51.6 billion in risk transfer deals.
The value of bulk annuity buy-ins and buyouts was down 27% to a total £31.8 billion, compared to £43.8 billion in 2019.
However, consultants said that the number of these deals was only 6.6% lower year-on-year due to deals being largely conducted by pension funds with assets under £1 billion. There were 141 buy-ins or buyouts in 2020, compared to 151 deals in 2019.
Consultants expect the number of risk transfer deals in the U.K. market to continue to grow in 2021.
"Over 2021, we expect to see around £60 billion of risk transfer deals across the market, with alternative strategies such as capital-backed journey plans and the first defined benefit superfund deals starting to play a part in schemes' risk transfer journey planning," Andrew Ward, head of risk transfer at Mercer, said in an emailed comment.
Mr. Ward added that interest rate hikes since the start of 2021 have resulted in improved funding levels for many plans.
A separate analysis by Aon published Feb. 17 said 2021 is expected to be a strong year for the bulk annuity market alone, with volumes expected to surpass £30 billion for the third year in a row.
James Mullins, head of risk transfer at U.K. consultant Hymans Robertson, said buy-ins, buyouts and longevity swaps have now insured £300 billion in liabilities for U.K. defined benefit funds since 2007, with half of that transacted in the last four years.
Without the hindrance of lockdowns and economic uncertainty, a stronger upturn could follow in 2022, he added.
"Our projections show that we expect to see over £40 billion of buy-ins and buyouts (per year) on average over the next 10 years," he said.
Mr. Mullins expects to see a significant increase in the number of buyouts in the coming years as funding levels improve at pension funds, compared to 2020 when transactions were heavily weighted towards buy-ins.