Activity in the pension risk transfer (PRT) market has been robust, and with ample capacity and support from the re/insurance community persisting, alongside attractive pricing, it’s a great time for pension schemes to begin their de-risking journey, according to Rohit Mathur, Head of International Reinsurance at Prudential Retirement Strategies.
After a slow start, PRT activity picked in the second half of 2021 with buy-in and buy-out volumes for the year coming in at around the £30 billion mark.
With demand for PRT solutions in both the UK and U.S. remaining high on the back of a bumper period for the marketplace, Reinsurance News spoke with Prudential’s Mathur about conditions in the space and what the future holds.
“In terms of highlights of the market, I would say last year compared to the previous year, we saw fewer large transactions, especially in the buy-in world. But it did allow mid-sized to smaller, sub £1 billion transactions to get good attention,” said Mathur.
In general, he continued, pricing has been very attractive in the market, and with transactions of all shapes and sizes receiving good attention, now might be the right time for pension schemes to explore their options.
“If you’re a pension scheme looking to de-risk this is a great opportunity, it’s a great time to come to the market. You’re getting good attention from the reinsurance community and the insurance community.
“There’s good sourcing of assets from both of these communities, whether it’s through direct sourcing of assets, or even through innovative structures in the market, like funded reinsurance, those have allowed schemes to get good pricing and good attention in the market,” explained Mathur.
Adding that, “from a schemes point of view, if you’re ready and able to transact, there are market opportunities that were prevalent last year, which allowed a number of schemes to execute on their plans.”
Looking to what the UK market will bring in the months ahead, Mathur explained that predictions are similar to last year, with some of the higher industry consultant estimates trending towards £40 billion.
“We generally agree with that, and looking at our pipeline, we think the market has momentum which is continuing into 2022,” said Mathur. “I do think, though, compared to last year, this could be the year where a few larger transactions could test the market. So, this could be more similar to 2019 where we did see some of the larger buy-ins come in, test the market and explore and ultimately transact.”
Similarly, noted Mathur, on the pension swap side of the market, there’s numerous companies that have come further along in their journey plans, and Prudential sees a strong pipeline for pension swaps as well.
“All indications are that the market will be robust for that as well. And, frankly, we’re very well positioned to meet the needs of our clients, whether it’s in the reinsurance of swaps, or supporting insurers and their buy-ins and buy-outs,” said Mathur.
Looking more secularly, Mathur told Reinsurance News that the trend of companies continuing to transform and de-risk pension plans to unlock opportunities and drive growth for their businesses, is a global one, which is being aided by various factors.
“One of which is that funded statuses are quite high for a number of these pension plans,” noted Mathur. “They’re very well positioned on their funded status and that allows de-risking to happen, it makes it more affordable. Pricing remains attractive and every indication is that it will stay the same in 2022. There is lots of insurance and reinsurance capacity available, which is also driving volume.”
“And, also, there is a recognition that market volatility is here to stay, especially in light of varying successes of vaccine rollouts, and to new variants coming in and hopefully dissipating. And volatility can sometimes provide opportunities, especially for schemes that are otherwise well-hedged, to take advantage of moments in the market in the year; get good pricing and seamlessly execute,” he concluded.
