PRT market on track for second largest year ever in 2022

Pension scheme trustees have been encouraged to engage with insurers early amid concerns over a potential capacity crunch, with 2022 set to be the second largest year ever for the UK pension risk transfer (PRT) market, according to Legal & General (L&G) Group.

The group's Global PRT Monitor showed that the volume of the UK PRT market is expected to reach around £12bn in the first half of 2022, representing a 50 per cent increase compared to the same period in 2021.

L&G suggested that this increase in demand from pension schemes will also continue during H2 and into 2023, including an increase in demand from some large pension schemes.

As a result, 2022 is on track to become the second largest year ever in the UK market, with the market volume for the year expected to reach £30-35bn, or more depending on the number of large transactions that are completed in the second half of 2022.

However, L&G warned that it is becoming increasingly difficult for insurers to participate in all transactions as demand from pension schemes increases.

In light of this, the group argued that early engagement will help pension schemes to attract insurer interest and make the most of opportunities that may arise.

L&G Retirement Institutional PRT managing director, Chris DeMarco, commented: “The PRT sector in the UK is yet again proving itself to be an exciting and valuable contributor to the national economy.

"Thanks to favourable market conditions pension scheme funding levels are improving and buyout affordability is increasing.

“Insurers are working hard to meet the increased demand from pension schemes and we expect transaction volumes to continue to grow in future years.

“Our message for pension schemes considering a buy-in or buyout transaction in this busy market is simple – schemes who engage insurers early, have flexible timeframes and have prepared thoroughly put themselves in the best position to secure a transaction which best meets their needs.”

The group also noted that as the market gets busier, pension schemes are increasingly moving away from accepting the traditional auction process and instead choosing to partner with an insurer, or a small panel of insurers, to deliver the best outcome.

According to the group, rising interest rates, combined with widening credit spreads have improved also pension scheme funding levels and increased buyout affordability.

These improved funding levels have also contributed to an increase in the number of full pension sheme transactions, rather than pensioner only cases, which L&G predicted will continue in the current market environment.

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