Germany’s total pension assets are touching €730bn. But even with revised accounting standards, which explicitly brought pension liabilities onto corporate balance sheets, being introduced in the mid-noughties, activity in the country’s pension risk transfer (PRT) market has been muted. Magnus Schmagold, Partner at German pension buy-out firm Funding Solutions, which has struck seven PRT deals worth a collective €324m since it was launched in 2018…
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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