A.M. Best Special Report: Pension Risk Transfer Opportunities Emerging for U.S. Life Insurers
OLDWICK, N.J.--(BUSINESS WIRE)--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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