Fitch Ratings, a global credit ratings agency, expects UK life insurers’ pension risk transfer (PRT) market activity to recover in 2026.
Fitch Ratings links this expectation to continued demand from defined benefit pension schemes seeking to reduce balance sheet exposure, alongside the potential re-emergence of larger transactions.
The agency notes that total PRT volumes declined to approximately GBP 38 billion in 2025 from GBP 49 billion in 2024, with the agency attributing the reduction mainly to a weaker pipeline of large deals rather than a broad-based slowdown in activity.
At the same time, Fitch Ratings highlights that the number of transactions increased to more than 350 in 2025, and it expects further growth in deal counts, particularly as smaller schemes remain active in the market.
Fitch states that profitability on new PRT business came under pressure in 2025. According to Fitch Ratings, this reflected a combination of lower transaction values, heightened competition among insurers, and persistently tight credit spreads. Fitch adds that these pressures were only partly mitigated by earnings from in-force books.
Looking ahead, Fitch expects competitive dynamics to remain strong across most deal sizes due to continued market entry by new participants and ongoing product innovation. In Fitch Ratings’ view, this environment is likely to continue constraining new business margins in 2026, even though rising volumes should help support overall earnings generation.
Fitch also reports that several UK life insurers saw modest declines in Solvency II capital ratios during 2025. Fitch Ratings attributes this to higher levels of capital return to shareholders and the strain associated with writing new business.
Even so, Fitch notes that these ratios generally remained well above management’s stated risk appetite thresholds. The agency further observes that IFRS shareholder equity declined across most insurers, driven by elevated capital distributions and hedging strategies used to manage Solvency II volatility, which can introduce greater variability in IFRS reporting outcomes.
Fitch expects continued emphasis on shareholder returns, combined with execution of existing transaction pipelines and growing allocation to private markets, to exert some downward pressure on Solvency II ratios. However, Fitch maintains that capital buffers are likely to remain strong and supportive of current rating levels.
Fitch Ratings highlights that workplace savings flows in the UK remain resilient, supported by the ongoing impact of auto-enrolment, and Fitch Ratings expects this trend to continue into 2026.
The agency also notes an improvement in retail wealth inflows, although it cautions that broader macroeconomic uncertainty, including geopolitical risks and elevated interest rates, could create headwinds for investor sentiment and inflow stability.
In its forward-looking assessment, Fitch Ratings identifies several key areas to monitor in 2026. Fitch Ratings expects UK life insurers to continue increasing allocations to private assets, particularly long-dated illiquid investments, driven by structural demand for matching-adjusted returns.
While Fitch Ratings believes portfolios are likely to remain broadly diversified, it warns that a meaningful shift into more complex or lower-quality illiquid exposures could weaken underlying credit profiles over time.
The agency also points to the growing influence of global asset managers, both through ownership stakes and strategic partnerships, which it says is increasingly shaping insurers’ investment strategies and capital allocation decisions.
Finally, Fitch Ratings highlights continued regulatory scrutiny around credit risk assessment frameworks, the robustness of internal rating approaches, and the capital treatment and risk management of funded reinsurance as important factors that could influence the sector’s risk profile and business models going forward.
