A.M. Best Special Report: Pension Risk Transfer solutions
OLDWICK, N.J., February 11, 2014—A.M. Best Co. has observed a growing
interest by pension plan sponsors to provide guaranteed income solutions to
retirees, manage longevity risk and minimize the negative consequences of
underfunded plans through pension risk transfer (PRT) solutions provided by
the U.S. insurance industry.
Given strong U.S. equity market performance, low equity market volatility
and rising interest rates, plan sponsors’ ability and desire to execute a
PRT transaction are likely to accelerate. As positive macroeconomic trends
have improved plans’ funding status, A.M. Best believes there is an
opportunity for sponsors to offload the investment and longevity risk
associated with their plans. While the U.S. market is evolving, A.M. Best
sees the potential for growth over the next decade. The U.K. market has
traditionally been recognized as a worldwide leader in providing PRT
solutions.
PRT is broadly defined as the process of transferring all or some of the
risks associated with defined benefit plans (public or private sectors) to
third parties. The spectrum of risk transfer is broad and could be as
simple as operational risk transferred for administering benefit payments
or as complex as full risk transfer including longevity risk, inflation
risk, interest rate risk, credit risk, funding risk and investment risk.
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