Morningstar DBRS has taken note of the pension risk transfer (PRT) market globally in a new commentary report published July 7. In it, they discuss the skepticism some plan members in the United States have about the deals (and the resulting lawsuits) and the regulatory attention being paid to such deals in the United Kingdom. In Canada they note a jump in market volumes in 2024, saying they anticipate demand for such deals will remain steady.
“With life expectancy trending higher across the globe, retiree populations are growing, driving increased demand for retirement security solutions. Plan sponsors eager to reduce longevity risk exposures associated with defined benefit (DB) pension plans are entering PRT deals to reduce their balance sheet risk,” they write in the report, Sustained Demand for Pension Risk Transfer Deals Despite Member Concerns and Regulatory Scrutiny.
“A key driver for the continued PRT demand in 2024 was higher interest rates.” These higher rates, they add, improved DB plans’ funded ratios. They also drove bond yields higher, improving insurers’ fixed income investment returns, enabling them to offer more attractive PRT pricing.
In line with shifting demographic trends, they say PRT deals have experienced steady demand from plan sponsors. In the U.S., however, the transactions have been met with skepticism, and lawsuits from employees filed against their employers. “The demand for these deals is also attracting regulator attention in the U.S. and UK. Notwithstanding these developments, we believe that the demand for PRT transactions will remain steady, with some variability according to the prevailing interest rate environment,” they write.
In Canada, they note that PRT volumes stood at $11-billion in 2024, “a 42 per cent jump over a comparatively smaller base in 2023,” they state. “In Canada, Sun Life and Blumont Annuity Company (formerly Brookfield Annuity Company) continue to dominate the market with other players like iA Financial, BMO Insurance and RBC Insurance participating as well.”
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