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Pension risk transfer markets stabilise after pandemic pullback: L&G

10th August 2021 - Author: Matt Sheehan

A new report from Legal & General shows a robust deal pipeline for the second half of the year for both the US and UK pension risk transfer (PRT) markets, following a pandemic-induced slowdown in 2020.

Longevity imageThe Legal & General Group’s global pension risk transfer businesses, Legal & General Retirement Institutional (LGRI), reported accelerating transaction volume particularly in the US where there is the potential for a record-breaking annual market volume of between $30-40 billion (£22-29 billion).

In the UK, it has been a quieter start to the year across the market, but there is strong demand across the full range of transaction sizes, particularly at the smaller and mid-sized end of the market.

Given the current strength of the UK deal pipeline, L&G expects the second half of the year to be very busy, with estimated annual market volume of around $34.5 billion (£25 billion).

After a slow start to the year, and a dip to $27 billion (£21 billion) in US market volume in 2020, volume for the first half of the year in the US grew more than 26% to $8.5 billion (£6 billion), from $6.7 billion (£5.3 billion) the year prior.

Legal & General’s report concludes that the PRT market is continuing to evolve in a beneficial way for pension plans considering risk mitigation solutions.

If interest rates rise from their near-record lows, unhedged plans will see their funding status improve as liabilities decrease, making PRT more attractive.

This, combined with the strong competitive dynamics between insurers, means pension plans with clear objectives will likely find numerous opportunities later this year to secure a competitive deal.

“The level of activity and demand in the US market today should put to rest any lingering concerns about the pandemic’s long-term effect on this industry,” said George Palms, President of Legal & General Retirement America. “The interest rate and market volatility the world has experienced over the past 18 months seems to have only reinforced for corporate managers the value of mitigating pension risk.”

John Towner, Head of New Business, Legal & General Retirement Institutional, also commented: “With the improvement in pension plan funding levels this year, we continue to see strong demand in both the UK and US for pension risk transfer.”

“Sponsoring companies in both countries are increasingly looking to insurers to take on responsibility for their pension obligations and help them reduce their pension exposures,” Towner added. “We are expecting a very strong second half of the year in both the UK and US with a number of large transactions coming to market.”

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