The four emerging trends in the UK pension risk settlement market for smaller schemes: Lisa Varley

With the positive start to 2023 following on from the trend of improved funding in the latter part of 2022, many of these schemes are now finding that they are fully funded or approaching that state sooner than they had expected. This has fuelled expectation that more of them will come to the risk settlement market in the near future.

As expected, 2023 has been a busy year for the risk settlement market in Yorkshire, mirroring activity across the UK. The trends we foresaw have, due to improvements in funding, hastened, with changes in the market altering the way smaller transactions are operating and accelerating activity.

Insurers remain genuinely committed to providing solutions at the smaller end of the market, despite capacity restraints that limit their ability to quote on the rising number of requests they are receiving.

This is evident in the number of insurers choosing to invest in consolidating their broking processes, enabling them to provide more quotes on smaller transactions.

The following four trends are emerging for smaller transactions:

Schemes need to be flexible on transaction timing.

Giving insurers as much flexibility as possible allows them more scope to resource transactions around the other quotations on which they are working. While this is true for all deal sizes, smaller transactions are less resource-intensive than larger transactions, so insurers can more readily utilise short-term pockets of resource to quote on these deals.

More insurers are looking to quote on an exclusive basis.

A single insurer working exclusively with a scheme to put forward a quotation has been the norm for sub-£10 million deals in the past. Insurers are looking to use this approach for a larger range of transactions, as it increases the certainty of completing a transaction if they can put forward a compelling offer.

Some insurers are looking to increase standardisation of parts of the quotation process.

An example of this is where insurers use a standardised data template in order to make the process of providing a quotation more efficient.

Preparing a scheme’s assets before approaching insurers is increasingly important.

Many investment strategies are anchored by illiquid assets, and being a forced seller means accepting a lower price, creating a shortfall. Innovation is happening and schemes have found solutions to this challenge, but advance thinking about exit strategies can help reduce cost and delays.

The most important thing for schemes to bear in mind is that the market is still very much open. If they can correctly prepare their scheme and their approach, they should have every opportunity to move ahead with a transaction.

Lisa Varley is a senior consultant at Aon Leeds