Outlines ‘dos and don’ts’ for sub-£150 million schemes approaching a transaction
LONDON 28 May 2024 – Aon plc (NYSE: AON), a leading global professional services firm, has said that with activity in the UK risk settlement market showing no signs of slowing down. Smaller pension schemes need to make the right preparations to get the best attention for their proposed transaction.
This year, Aon has already completed six deals – across five different insurers – with schemes of less than £150 million and is currently advising on transactions with more than 20 others of similar size. In all these cases, ‘Pathway’, Aon’s proposition for taking smaller transactions to market, has been utilised to gain insurer traction, to identify the approach to market that would deliver the best outcome for each scheme, and to drive the transaction as efficiently as possible.
Joe Hathaway, associate partner in risk settlement at Aon, said:
“The pension scheme risk settlement market is buoyant and, although there is some noise about small schemes being crowded out of the market by all the mega deals, this is not what we are seeing in practice. In fact, there are increasingly more options and resources available for schemes that are under £150 million in size. This expansion in capacity across the industry is welcome as it is really needed to support the increasing level of demand across the full range of scheme sizes.
“Most significantly, the market is especially active for schemes that have prepared correctly and which have been taken to market in the right way. As schemes navigate new forms of volatility, we find there are always subtle changes to the market year-on-year and 2024 appears to be no exception. We have seen some distinct trends emerging.”
These include:
- Insurers are streamlining their broking processes to make it easier for them to quote on more deals at the smaller end of the market - but each insurer proposition is different. This is positive in that a wider range of schemes are being catered for - but it does mean clients need to be well-informed from the outset.
- More insurers are now considering quoting for smaller transactions - either existing insurers developing their own streamlined process or new entrants to the market setting up to quote for smaller deals.
- Insurers are increasingly engaging with a wider range of schemes on an ‘exclusive’ basis – so schemes may be encouraged to select one insurer at the outset to provide a quotation. Aon’s Pathway approach helps schemes to assess the options available to them based on the latest market dynamics and then develop a strategy that will deliver the best outcome for the scheme’s own circumstances.
As they contemplate their endgame options, and, in particular, as they move to the bulk annuity market, Aon is suggesting some ‘dos and don’ts’ for sub-£150 million-sized schemes.
Joe Hathaway said:
“All these thoughts come under the general heading of ‘Prepare’ - but the way the market is developing we would suggest:
Do
- Ensure all stakeholders are aligned – make sure you get the relevant training and understanding upfront.
- Have a clear strategy. Not just for the transactions but for post-transaction work as well - on which insurers are currently very focused. The member experience has to remain central throughout the entire process.
- Be flexible for the best results and insurer engagement.
- Make sure you and your advisers are aware of all the solutions out there, that way you can find the best fit for your scheme.
Don't
- Be afraid to ask – the processes may be streamlined but one size does not fit all. Do not just take what you are given.
- Worry about complexity – there is some flexibility and willingness to find solutions to problems even for smaller schemes, for example, in relation to deferred premiums and solutions for defined benefit/defined contribution underpin schemes.
- Spring surprises on insurers – which will not be the case if schemes follow the ‘do’s’. Insurers have a close eye on their capacity, so planning and meeting deadlines is important to keep your place in the queue.
Pathway is Aon’s streamlined approach to bulk annuity transactions of less than £150 million. It is a low-cost, fixed-fee solution that Aon has developed along with Eversheds Sutherland, a leading international law firm. The combination of Aon’s broad market experience with a time-tested preparation process and pre-negotiated contracts means Pathway transactions are more attractive to insurers.
Aon’s Pathway team has transacted around £2 billion in liabilities since its inception and over 95 percent of all Pathway transactions have successfully completed – covering deals of all sizes and complexities – giving insurers and clients confidence in the Pathway solution.
Visit Aon.com for more information about Aon’s Risk Settlement team here.
About Aon
Aon plc (NYSE: AON) exists to shape decisions for the better — to protect and enrich the lives of people around the world. Through actionable analytic insight, globally integrated Risk Capital and Human Capital expertise, and locally relevant solutions, our colleagues provide clients in over 120 countries and sovereignties with the clarity and confidence to make better risk and people decisions that help protect and grow their businesses.
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Media Contacts:
Colin Mayes
Aon
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+44 (0)7801 748138
Anelia Fikiina
Kekst CNC
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+44 (0)7970 952774