Pension Risk Transfers Climb to $260B

Increasing longevity risk will lead to further adoption of de-risking in North America, according to Prudential.

More than $260 billion in pension liabilities have been transferred since 2007, according to a report by Prudential.

At least 40 pension funds in the UK, US, and Canada executed de-risking transactions of over $1 billion in the last eight and a half years, the study found.

Pension risk transfer (PRT) has been most widely adopted in the UK, with nearly $180 billion in de-risking transactions occurring there between 2007 and June 2015. According to the report, momentum in PRT has been driven by “competitive pressure in every industry peer group.”

“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,” said William McCloskey, vice president of longevity reinsurance within Prudential Retirement’s PRT business.

The trend was found to be less popular in North America. Canadian plans have transferred just $16 billion in liabilities since 2007, while the US transferred $67 billion—a number heavily boosted by “landmark” General Motors and Verizon PRT deals in 2012.

Additionally, while longevity risk transfers made up a sizeable portion of the UK’s PRT market, all risk transfers in the US and Canada were limited to pension buy-outs and buy-ins until 2014, according to the report.

The first North American pension fund to complete a longevity risk transfer transaction was Bell Canada, which transferred $5 billion of pension liabilities in early 2015.

US pensions have yet to adopt longevity de-risking.

However, as life expectancy continues to increase, Prudential predicted that several countries will begin using longevity risk transfer solutions, including the US.

“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,” said Amy Kessler, head of longevity risk transfer at Prudential Retirement’s PRT division.

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Related: L&G America Takes on PRT Market, Inking Major Pension Buyout

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