Transactions by which a company transfers its defined-benefit pension obligations to an insurer.
Pension risk transfer designates the transactions by which a company offloads the obligations of its defined-benefit pension scheme by transferring them to an insurer, which then takes over the payment of annuities to beneficiaries and assumes the associated risks, longevity, rates, investment. This market has grown strongly, particularly in the United Kingdom and the United States, as companies seek to remove from their balance sheet volatile and costly-to-manage pension obligations. Transactions take the form of bulk annuity buy-ins or buy-outs, where the insurer guarantees all or part of the benefits. For life insurers and reinsurers, pension risk transfer represents a major growth pool, mobilising considerable amounts and concentrating significant longevity risk that they manage through diversification, asset-liability matching and longevity swaps. The quality of pricing, which rests on longevity assumptions, is decisive: an underestimate of life expectancy exposes to lasting losses on very long-term obligations.
A company transferring its entire pension scheme to an insurer through a full buy-out permanently offloads the longevity risk of its former employees.
PRT, pension risk transfer, transfert de risque de retraite, dérisquage des retraites