Revival of the UK Life Insurers' Pension Risk Transfer Market by 2026

Fitch Ratings anticipates a revival in the UK life insurers' pension risk transfer (PRT) market by 2026. This projection is driven by an ongoing demand from defined benefit pension schemes aiming to mitigate balance sheet exposure and the potential resurgence of large-scale transactions in the sector.

In 2025, PRT volumes fell to about GBP 38 billion from GBP 49 billion in 2024, mainly due to a reduction in large deals rather than a general decline in the market. Despite this, over 350 transactions occurred, as smaller pension schemes remained active. Fitch expects this trend of increasing transaction numbers to continue, underscoring sustained market activity.

Profitability in new PRT business faced challenges in 2025, hampered by reduced transaction values, intense competition among insurers, and tight credit spreads. These factors affected earnings; however, existing business provided some financial relief. Fitch anticipates competitive dynamics to persist as new market participants enter and product innovation evolves, which will likely keep business margins constrained in 2026.

UK life insurers experienced slight reductions in Solvency II capital ratios in 2025, influenced by higher capital returns to shareholders and new business pressures. Despite these changes, capital ratios generally remained above management risk thresholds. IFRS shareholder equity decreased, affected by increased capital distributions and hedging strategies designed to manage Solvency II volatility.

Looking ahead, Fitch forecasts a focus on shareholder returns, transaction pipeline execution, and increased investment in private markets. These strategies may pressure Solvency II ratios downward, yet capital reserves are expected to remain robust, supporting current ratings. The strong workplace savings flow, propelled by auto-enrollment trends, should continue into 2026, although geopolitical risks and elevated interest rates could impact investor sentiment.

UK life insurers are expected to increase investments in private assets, particularly those offering long-term illiquid returns. While portfolios should stay diverse, a shift toward more complex or lower-quality investments could affect credit profiles. Global asset managers, through ownership and strategic partnerships, are increasingly influencing insurers' investment strategies. Ongoing regulatory scrutiny, particularly in credit risk assessment and risk management of reinsurance, will continue to shape the industry's landscape.