Seizing Opportunity in a Booming Pension Risk Transfer Market

Seizing Opportunity in a Booming Pension Risk Transfer Market
January 4, 2024 7 mins

Seizing Opportunity in a Booming Pension Risk Transfer Market

Seizing Opportunity in a Booming Pension Risk Transfer Market

Businesses considering pension risk transfer to mitigate volatility should prepare now to be well-positioned for market opportunities.

Key Takeaways
  1. Evolving macroeconomic and social conditions have caused companies to examine the benefits of offloading pension risk.
  2. Related insurance markets are thriving as senior leaders look to transfer risk, capture efficiencies and create a more agile business through pension risk transfer.
  3. Trustees and plan sponsors must have a well-developed strategy to maximize engagement from insurers.

Healthy pension plans, combined with a growing and competitive pension risk transfer (PRT) market, create an opportunity for plan sponsors to rethink their methods. The pension landscape looks vastly different today than it did 20 years ago. In the era of the 60-year career and a global transition toward sustainable pension models, employers are likewise rethinking their approach to pension plans — and they should strike while the iron is hot.

Better Informed 

Trends Driving the Pension Risk Transfer Market 

Notable social and macroeconomic developments have impacted pensions, helping to drive a surge in demand for pension risk transfer:

Longevity risk remains top of mind for trustees and plan sponsors. If plan members live longer than forecasted, pensions will also be paid longer than expected and cost more money. Both trustees and corporate sponsors rank longevity in the top three risks faced by defined benefit (DB) pension plans, according to Aon’s Global Pension Risk Survey. Further, volatile mortality rates mean the impacts of this risk are hard to predict. Sponsors are therefore reconsidering the long-term goals for their pension plans and looking to PRTs as a solution.

Rising interest rates have served as a catalyst for increased PRT activity. The sharp rise in interest rates in certain regions has reduced the size of plan liabilities and left pensions better funded.1 This then results in lower dollar cost for individual PRT deals. 

Pensions have reached well-funded levels. In October 2023, Aon’s Pension Risk Tracker reached its highest funded status level since it was introduced in 2011, the aggregate pension funded status of S&P 500 companies surging to 104.3 percent. Similarly in the UK, the average funding positions of DB schemes have steadily increased. Combined with the impact of rising interest rates, many pension schemes reached a fully funded position in 2022, leaving their sponsors prepared to consider a PRT transaction.

Quote icon

Pension plan funding is at historic highs. With higher interest rates than we've seen in the last decade, plan sponsors now have the opportunity to do more with their pension plans, including solutions like pension risk transfer.

Megan Nichols
Partner and Head of Pension Settlement Solutions, United States

Regional PRT Markets Worth Watching 

Two regions — the United States and United Kingdom — have seen significant growth in their respective PRT markets. They are worthwhile geographies for investors to therefore keep their eye on as the pension risk landscape evolves.

  • United States

    The PRT market in the United States (U.S.) is growing at about 20 percent annually and is on track to have another banner year. In 2022, there were 568 PRT transactions totaling $51.8 billion in premiums, representing a record high.2 The market is on track to reach $45 billion in premiums placed in 2023, with 289 transactions occurring in the first half of the year, totaling $22.4 billion in premiums.3

    Retiree lift-outs, also known as partial buyouts, are the key PRT transactions driving growth in the market. They also account for most mega-deals in 2022 that contributed to the large premium volumes seen in the U.S. marketplace.

    Competition among insurers in this market is increasing. There are now 21 insurers active in the pension risk transfer market, up from just eight insurance companies a decade ago. “Multiple new insurers have entered the market over the last few years,” says Megan Nichols, partner and head of Pension Settlement Solutions at Aon. “This drives pricing competitiveness and gives rise to more sophisticated insurance solutions.”

    For 2024, areas to watch in this market include split transactions — where two insurers bid on and execute a PRT transaction, splitting up the participant benefits between them — and buy-ins, both of which are becoming more popular.

  • United Kingdom

    The PRT market in the United Kingdom (UK) has also had a banner year. In 2022, the bulk annuity market saw total volumes of $33.6 billion in premiums. By comparison, the market in H1 2023 topped $25 billion in premiums. Those numbers are even more impactful when considering real interest rates. “As a result, PRT performance from 2022 needs to be scaled down from 25 to 50 percent to see an accurate comparison between the two years,” explains Martin Bird, senior partner and head of UK Risk Settlement at Aon. For 2023, forecasts point to the market reaching approximately $60 billion in premiums — nearly doubling the total volume.

    “Pricing and capacity in the insurance market are absolutely buoyant at the moment,” adds Bird. “We have a very vibrant market, and plan trustees and sponsors want to capture the opportunity while it’s there.”

    While opportunities in the market are vast, insurers in the UK are overwhelmed with plan sponsors looking to execute full-plan transactions, rather than only insuring a portion of their plans. Combined with a growing number of billion-pound trades, these behaviors are boosting volume in the market. 

    The UK marketplace is expected to perform well into 2024, though insurers are not sitting on their laurels. Players in this market are working hard to find solutions to complex challenges facing employers, such as the problem of illiquid assets. Many pension plans have made use of illiquid assets as part of long-term investment strategies. The challenge is that these assets cannot easily transition over to an insurer, but to sell them quickly risks incurring large exit penalties. Bird predicts that a key theme over the coming years will be how to unwind illiquid assets as part of a PRT transaction without destroying value. 

Better Decisions 

Four Ways to Take Advantage of a Competitive Pension Risk Transfer Market 

As the PRT market continues to grow, businesses need to consider how to best position themselves to maximize insurer engagement. Having multiple insurers bid on a transaction can improve pricing competitiveness and allow a sponsor to compare multiple options.

1. Follow the Money
Financials are the first item that plan sponsors should examine when considering a PRT transaction. Specifically, companies need to look at the funding status of their pension plans and decide if getting to a fully funded status is palatable. This is typically the first barrier or gateway to moving forward. There are also accounting implications, from settlement charges to annuity payments, that a business needs to keep in mind.

2. Get Your House in Order
To attract the attention of insurers, sponsors need robust and clean data about their pension plan and plan-invested assets to demonstrate how they are going to fund the annuity premium. They also need to conduct thorough legal due diligence and decide on important terms. The structure of annuities can be complex, so being clear about the preferred deal structure and ensuring strong alignment between the trustees and plan sponsor is key before going to market. 

Most importantly, take your time. Some sponsors are worried about missing a window of opportunity and may rush to enter the PRT arena. But doing so can cause missteps and prevent a sponsor from getting transaction-ready, which insurers will notice.

Quote icon

To get insurers to bid, trustees and plan sponsors must do their homework to put themselves in the shop window and look like a project that has a high degree of potential.

Martin Bird
Senior Partner and Head of Risk Settlement, United Kingdom

3. Track the Market
Having a finger on the pulse of the market is vital to understanding whether a balance sheet can handle a PRT transaction. An annuity pricing tracker provides daily estimates of what insurers will charge for PRT annuity payments. 

4. Choose Skilled Advisors 
Working with a respected and experienced advisor who understands how to successfully execute a deal will help competitively position a plan sponsor to insurers. Moreover, an advisor that is active in the PRT market, with a wealth of data to back up their know-how can provide crucial insight into pricing and terms. 

In fact, not having a well-versed advisor in a plan sponsor’s corner can hinder a PRT deal. “Insurers don’t want to chase after a project where there is an inexperienced advisory team because it can create complex deals and execution risks,” says Bird.

To reap the full benefits of PRTs — from long-term de-risking strategies to securing the interest of insurers active in this arena — companies should prepare themselves effectively before entering the marketplace.   

Learn more about how your organization can take advantage of the fast-growing PRT marketplace.  

Aon’s Thought Leaders
  • Martin Bird
    Senior Partner and Head of Risk Settlement, United Kingdom
  • Ari Jacobs
    Senior Partner and Global Retirement Solutions Leader, North America
  • Megan Nichols
    Partner and Head of Pension Settlement Solutions, United States

1Aon’s Climate Change Challenges the Food, Agriculture and Beverage Industry
2Aon’s Operational Resilience in the Food, Agribusiness and Beverage sector
3 Food Security Update | World Bank Response to Rising Food Insecurity, The World Bank, 2023
4 This is the state of food security in 2023, World Economic Forum, 2023
5 Global Burden of Crop Loss, CABI
6Aon’s Industry Overview, Food, Agribusiness and Beverage
7 2022 Ponemon Cost of Insider Threats Global Report, Proofpoint, 2022
8 Global rice supplies tighten after India's July export ban, Reuters, 2023
9Pentland Analytics’ and Aon’s Respecting the Grey Swan
10 Farm and food investors face $150 billion loss on climate change, report says, Reuters, 2022
11 Ibid.
12 MICT’s Tingo Foods Partners with Evtec Energy to Build $150 Million Solar Plant in Nigeria, Solar Quarter, 2023
13Aon’s Captive Insurance
14Aon’s Digital Business Insights (DBI) Platform
15Aon’s HR Plays a Pivotal Role as People Risks Become Business Risks
16Aon’s 2022-2023 Global Wellbeing Survey

The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Information contained herein is for informational purposes only and should not be considered investment advice.

General Disclaimer

This document is not intended to address any specific situation or to provide legal, regulatory, financial, or other advice. While care has been taken in the production of this document, Aon does not warrant, represent or guarantee the accuracy, adequacy, completeness or fitness for any purpose of the document or any part of it and can accept no liability for any loss incurred in any way by any person who may rely on it. Any recipient shall be responsible for the use to which it puts this document. This document has been compiled using information available to us up to its date of publication and is subject to any qualifications made in the document.

Terms of Use

The contents herein may not be reproduced, reused, reprinted or redistributed without the expressed written consent of Aon, unless otherwise authorized by Aon. To use information contained herein, please write to our team.

Aon's Better Being Podcast

Our Better Being podcast series, hosted by Aon Chief Wellbeing Officer Rachel Fellowes, explores wellbeing strategies and resilience. This season we cover human sustainability, kindness in the workplace, how to measure wellbeing, managing grief and more.

Aon Insights Series Asia

Expert Views on Today's Risk Capital and Human Capital Issues

Aon Insights Series Pacific

Expert Views on Today's Risk Capital and Human Capital Issues

Aon Insights Series UK

Expert Views on Today's Risk Capital and Human Capital Issues

Client Trends 2025

Better Decisions Across Interconnected Risk and People Issues.

Construction and Infrastructure

The construction industry is under pressure from interconnected risks and notable macroeconomic developments. Learn how your organization can benefit from construction insurance and risk management.

Cyber Resilience

Our Cyber Resilience collection gives you access to Aon’s latest insights on the evolving landscape of cyber threats and risk mitigation measures. Reach out to our experts to discuss how to make the right decisions to strengthen your organization’s cyber resilience.

Employee Wellbeing

Our Employee Wellbeing collection gives you access to the latest insights from Aon's human capital team. You can also reach out to the team at any time for assistance with your employee wellbeing needs.

Environmental, Social and Governance Insights

Explore Aon's latest environmental social and governance (ESG) insights.

Q4 2023 Global Insurance Market Insights

Our Global Insurance Market Insights highlight insurance market trends across pricing, capacity, underwriting, limits, deductibles and coverages.

Global Risk Management Survey

Better Decisions Across Interconnected Risk and People Issues.

Regional Results

How do the top risks on business leaders’ minds differ by region and how can these risks be mitigated? Explore the regional results to learn more.

Impact Report 2025

Explore Aon's corporate sustainability impact and strategy.

Top 10 Global Risks

Trade, technology, weather and workforce stability are the central forces in today’s risk landscape.

Industry Insights

These industry-specific articles explore the top risks, their underlying drivers and the actions leaders are taking to build resilience.

Human Capital Analytics

Our Human Capital Analytics collection gives you access to the latest insights from Aon's human capital team. Contact us to learn how Aon’s analytics capabilities helps organizations make better workforce decisions.

Human Capital Quarterly Insights Briefs

Read our collection of human capital articles that explore in depth hot topics for HR and risk professionals, including using data and analytics to measure total rewards programs, how HR and finance can better partner and the impact AI will have on the workforce.

Insights for HR

Explore our hand-picked insights for human resources professionals.

Workforce

Our Workforce Collection provides access to the latest insights from Aon’s Human Capital team on topics ranging from health and benefits, retirement and talent practices. You can reach out to our team at any time to learn how we can help address emerging workforce challenges.

Mergers and Acquisitions

Our Mergers and Acquisitions (M&A) collection gives you access to the latest insights from Aon's thought leaders to help dealmakers make better decisions. Explore our latest insights and reach out to the team at any time for assistance with transaction challenges and opportunities.

Natural Resources and Energy Transition

The challenges in adopting renewable energy are changing with technological advancements, increasing market competition and numerous financial support mechanisms. Learn how your organization can benefit from our renewables solutions. 

Navigating Volatility

How do businesses navigate their way through new forms of volatility and make decisions that protect and grow their organizations?

Parametric Insurance

Our Parametric Insurance Collection provides ways your organization can benefit from this simple, straightforward and fast-paying risk transfer solution. Reach out to learn how we can help you make better decisions to manage your catastrophe exposures and near-term volatility.

Pay Transparency and Equity

Our Pay Transparency and Equity collection gives you access to the latest insights from Aon's human capital team on topics ranging from pay equity to diversity, equity and inclusion. Contact us to learn how we can help your organization address these issues.

Property Risk Management

Forecasters are predicting an extremely active 2024 Atlantic hurricane season. Take measures to build resilience to mitigate risk for hurricane-prone properties.

Technology

Our Technology Collection provides access to the latest insights from Aon's thought leaders on navigating the evolving risks and opportunities of technology. Reach out to the team to learn how we can help you use technology to make better decisions for the future.

Trade

Our Trade Collection gives you access to the latest insights from Aon's thought leaders on navigating the evolving risks and opportunities for international business. Reach out to our team to understand how to make better decisions around macro trends and why they matter to businesses.

Transaction Solutions Global Claims Study

Better Decisions Across Interconnected Risk and People Issues.

Weather

With a changing climate, organizations in all sectors will need to protect their people and physical assets, reduce their carbon footprint, and invest in new solutions to thrive. Our Weather Collection provides you with critical insights to be prepared.

Workforce Resilience

Our Workforce Resilience collection gives you access to the latest insights from Aon's Human Capital team. You can reach out to the team at any time for questions about how we can assess gaps and help build a more resilience workforce.

More Like This

View All
View All
Subscribe CTA Banner