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PFI predicts more growth in increasingly international pension risk transfer market

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New research from PFI highlights how plan sponsors around the globe are re-thinking their pension risk. 

The paper, “The Pension Risk Transfer Market at USD260 billion: Innovation, Globalisation and Growth,” notes that more than USD260 billion in pension liabilities have been transferred since 2007 and how recent transaction activity by global industry icons are forcing plan sponsors to re-think pension risk now. According to the white paper, by employing effective de-risking strategies, plan sponsors and fiduciaries can minimise the risk around plan contributions, while improving consistency of financial results and realising corporate finance benefits.

“Plan sponsors and fiduciaries who proactively manage or transfer pension risk can fund their pension obligations with certainty and gain a considerable advantage over those who don’t,” says William McCloskey, vice president of Longevity Reinsurance within Prudential Retirement’s Pension Risk Transfer business.

“Managing pension risk sets companies apart from their peers. In 2012, when jumbo pension risk transfer agreements first arrived in the US market, the question on most plan sponsors’ minds was whether to reduce pension risk. Today, with customised solutions readily available, the question is, which path will they take to a lower-risk future?”

With regard to growth in the US market, there have been USD67 billion of pension risk transfer transactions since 2007, according to Amy Kessler (pictured), senior vice president and head of Longevity Risk Transfer within Prudential Retirement’s Pension Risk Transfer business. In the UK, she added, there have been nearly USD180 billion in transactions completed over the same time period, and more than USD16 billion in activity in Canada.

Kessler notes that the UK leads the world in innovation as well with a broad range of pension de-risking products and approaches that allow pension funds to customise their de-risking path. “There is a strong trend toward the globalisation of the annuity and longevity reinsurance market that is being driven by the de-risking of corporate pension funds in many countries. UK advances in pension risk transfer are being emulated in the US and Canada and are rapidly spreading to countries with significant defined benefit pension plans.”

The UK is a leader in the longevity risk transfer market segment, where pension funds and insurers alike are tapping into the ample capacity in the longevity reinsurance market. This market continues to grow because the reinsurers are motivated first and foremost by the goal of balancing mortality and longevity risks within the reinsurer and diversifying risks across many industries, regions and socio-economic groups, according to Kessler. 

“We expect to see this trend continue to grow because this is a sensible profitable business for life companies to write for all the right economic reasons,” she says.

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