UK pension risk transfers hit record £50bn

More than $100 billion of pension liabilities were secured with re/insurers in 2023, according to Legal & General's pension risk (PRT) monitor. 

The Monitor was released today and revealed that the UK market saw a record £50 million ($63 billion) transferred in the UK market while the US market saw its second highest year ever with £45 billion ($56.7 million) transferred. Legal & General said the surge in UK activity was distinguished by a series of landmark transactions including the British Steel Pension Scheme, becoming the largest in the UK to have fully insured its members benefits, completing the last in a series of four transactions with Legal & General. 

The Boots Pension Scheme, another Legal & General transaction, plus two pension schemes of the RSA Group constituted the largest ever single and overall transactions, respectively. Five transactions of over £2.5 billion were announced compared to just one the previous year and only ten others between 2014 and 2022.In the US, volumes in Q4 2023 were expected to have reached over $12 billion, a 50% increase from the $8.1 billion recorded in Q4 2022 and one of the larger fourth quarters seen to date.

The US is poised for a potentially record-breaking Q1 at an estimated $15 billion driven by two large, expected transactions. This volume would surpass the previous Q1 record of $6.3 billion in 2023, Legal & General said. 

The surge in PRT activity has raised concerns among regulators around the world, with the Bank of England's Prudential Regulatory Authority saying it will stress test UK insurers' reinsurance deals in 2025 to ensure they are not at risk while the US National Association of Insurance commissioners is also examining the issue. 

Many of the transfers are carried out with Bermuda life re/insurers and the BMA is reviewing its own regulatory structures. It has also noted that it must approve all PRTs and consults with the relevant regulator before deciding on approval.  

In the UK alone, the Monitor said annualised volumes are projected to settle in the region of £50-60 billion, a significant increase from the average of £31 billion seen in the five years prior to 2023. Allowing for potential ultra-large transactions, there is also scope for these volumes to spike considerably in any given year.

"As demand increases in both markets, processes are adapting, with the Monitor highlighting repeat transactions in the US and an evolving solutions-focus in the UK as key industry trends," a press statement said. "It notes that soaring demand in both the UK and US should be seen in the context of the c.£1.4 trillion and over $3 trillion of respective DB pension scheme assets still sitting on company balance sheets. This suggests a multi-decade run off and the prospect of healthy markets for many years to come."

Andrew Kail (pictured), CEO, Legal & General Retirement Institutional, said: “2023 was a landmark year in which we saw a series of record-breaking transactions. The growth in both the UK and US markets is being driven by dramatically improved pension scheme funding levels. 

"In the context of this increasing demand, we’re innovating to expand the de-risking toolkit for pension trustees and sponsors. The synergies across our businesses, both in the UK and US, enable us to leverage the full breadth of expertise from across our organisation to help schemes to secure and protect their members’ retirement benefits.”

George Palms, president, Legal & General Retirement America (LGRA) added: “The US PRT market has performed strongly now for several consecutive years, with 2023 the second largest year to date. This sustained market strength demonstrates that there is a continued appetite among plan sponsors for key risk mitigation strategies. As interest rates remain elevated, funding levels will continue to be a driving force behind the growth in the market, and we expect more plan sponsors to view this as an opportunistic time to offload risk.”

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