Germany’s pension market has been slow to embrace full risk transfer deals but a weakening economy and rising geopolitical instability are breathing life into the sector. From a virtual standing start, buy-outs have increased in the past few years and the number of companies offering to absorb schemes has risen to about seven, with a handful more thought to be waiting in the wings as transactions multiply, said Hanne Borst, Head of Retirement at WTW Germany, the latest entrant to the market.
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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