The US pension risk transfer (PRT) market saw a record volume and number of deals take place in 2022. This year is set to break more records as the rapid rise in interest rates makes offloading schemes more affordable and new players entering the market has increased competitiveness. Last year, the US recorded over $50bn worth of PRT deals, a big jump on the $38.1bn that actuarial consultants Milliman recorded for the market in 2021…

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Insurers are favouring funded re as it helps firms manage the market and longevity risks associated with writing bulk purchase annuity (BPA) business by reducing capital charges and therefore making PRT deals more competitive. 

Unsurprisingly, given its growth and potential for capital optimisation, UK regulators have been carefully watching the increased use of funded re. In June 2023, the Prudential Regulatory Authority (PRA) sent a “Dear CRO’ letter to heads of risk at UK life insurers.

The letter outlined the regulator’s two main concerns from a sectoral review which it had carried out.

“One of the key risks arising in funded re is that firms recapture sub-optimal portfolios with depressed values and with limited ability to be transformed effectively to the firms’ preferred portfolio,” the PRA letter said.

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