Reinsurance News

Pension risk transfer market set to accelerate after record H2: L&G

8th February 2022 - Author: Matt Sheehan

Analysts at Legal & General are expecting momentum in the global pension risk transfer (PRT) market to continue into 2022, following another strong half-year period for the sector, particularly in the US where potential transaction volume records were set.

Legal_&_GeneralL&G’s Global PRT Monitor reported a strong second half of 2021 for both the UK and US markets as demand for PRT solutions continued to grow, helped by competitively priced reinsurance capacity.

In the US, the company recorded an estimated $38-40 billion (£28-30 billion) in total annual transaction volume, which far surpasses the $27 billion reached in 2020.

Last year’s volume was spurred on by an increased number of large-to jumbo transactions and the improved funding status of Defined Benefit pension plans due to strong investment returns and rising interest rates.

Meanwhile, in the UK, the Monitor reports that the second half of the year was one of the largest and busiest six-month periods in the history of the market, with around £22 billion of retirement income secured.

Stratumn, by SIA Partners

Overall, it estimates the total transaction volume for the year approached £30 billion, with growing demand driven by a number of factors, including improved pension scheme funding levels and competitive longevity reinsurance pricing.

And L&G anticipates that volumes will continue to grow in the UK, spurred market movements, asset availability and the number of large pension plans coming to market

In the US, analysts similarly expect that the appetite for plan sponsors with de-risking ambitions will increase in 2022, with a number of transactions over $750 million already in the pipeline.

“Last year was another busy year for the UK PRT market, and we expect activity to accelerate in the years ahead,” said Chris DeMarco, Managing Director UK PRT, Legal & General Retirement Institutional.

“We believe the market will go from strength to strength as more schemes move closer to their endgame and full buyout, with new innovations bringing increased flexibility and affordability,” he continued.

“The experience of the past two years has underlined the fundamental purpose of insurance: protecting the retirement income of members during one of the most uncertain periods in living memory”

George Palms, President, Legal & General Retirement America, also commented: “Last year’s potential record transaction volume in the US was driven by large deals. The story in 2022 will be the acceleration of deal volume of all sizes, as plan sponsors take advantage of an increase in funding status and rising interest rates.”

“A robust pipeline in the first quarter provides early evidence of this strong demand. We also anticipate an upswing in plan-terminations – the final step in the de-risking journey.  Plan sponsors contemplating a risk transfer should consider the unique opportunity the next year presents, as financial market conditions and competitive market dynamics remain favorable.”

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