PRT market volumes set to shrink as liabilities fall

Pension risk transfer market volumes could appear smaller over time as a result of the recent gilt market volatility, even if the number of members moving to the life-insurance sector remains consistent, the Pension Insurance Corporation (PIC) has suggested.

PIC explained that one consequence of the recent rise in gilt yields was that while defined benefit (DB) pension schemes are much better funded, headline liabilities are also smaller than they were at the start of the year.

This, according to PIC, will make pension risk transfer market volumes appear smaller over time, even though the number of members moving to the life insurance sector will be the same on a like-for-like basis.

Despite this, PIC CEO, Tracey Blackwell, pointed out rise in gilt yields means that trustees are now much better placed to transact than they have ever been, triggering an expanded pipeline of new business, which, on an expected annuitants basis, is "a record amount".

Indeed, PIC's company update revealed new business premiums during 2022 so far of £3.4bn, as well as a £10bn short-term pipeline, and an immediately addressable market of new business of £20bn, all of which could potentially cover the benefits of 250,000 people.

Reflecting on the past year more broadly, the update revealed that PIC’s portfolio was worth £40.7bn as at 30 September 2022, with insurance liabilities of £31.7bn, down from £31.7bn in HY2022, attributing this decrease to the higher interest rate environment.

The update also revealed that the insurer’s direct investment in the UK economy reached £2.2bn in the year to date, including a £200m investment in a build to rent skyscraper in Birmingham, and a fourth investment, of £40m, in a social housing provider.

PIC CEO, Tracey Blackwell, commented: “I’m delighted that our purposefully invested portfolio proved robust, and that our liquidity and collateral arrangements worked well during the recent market volatility, as we expected.

“The rise in gilt yields means that trustees are now much better placed to transact than they have ever been and this is reflected in the expanded pipeline of new business, which, on an expected annuitants basis, is a record amount.”

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