Sustained Demand for Pension Risk Transfer Deals Despite Member Concerns and Regulatory Scrutiny

Morningstar DBRS published a commentary examining the rising demand for pension risk transfer (PRT) deals in light of growing retiree populations and longer life expectancy across the globe.

Key Highlights
-- With life expectancy trending higher across the globe, retiree populations are growing, driving increasing demand for retirement security solutions. Plan sponsors eager to reduce longevity risk exposures associated with defined benefit pension plans are entering PRT deals to reduce their balance sheet risk.

-- A key driver for the continued PRT demand in 2024 was higher interest rates, which improved defined benefit pension plan funded ratios. The favorable interest rates also drove bond yields higher, improving insurers' fixed income investment returns and enabling insurers to offer more attractive pricing on PRT deals.

-- The demand for PRT deals is attracting regulatory scrutiny especially in the U.S. and the UK, where a significant number of global PRT deals are done.

"We anticipate that the PRT market will continue to grow in the short to medium term, driven primarily by cost savings and risk reduction strategies of plan sponsors," says Victor Adesanya, Vice President, Global Insurance & Pension Ratings. "However, interest rates are starting to decline across the globe, which will likely make this business less attractive to insurance companies, and pricing will likely become more expensive, reducing demand from plan sponsors."