Christian de Monte, head of insurance and group subsidiaries at Lloyds Banking Group, said higher interest rates, strong insurer capital and increasing market competition are supporting a strong pension risk transfer (PRT) channel and creating attractive opportunities for pension schemes and sponsors.
“With interest rates higher than a few years ago, a strong PRT pipeline and, most importantly, insurers well capitalized and operating in an increasingly competitive market, this should translate into compelling risk transfer opportunities for pension plans and sponsors,” Dement said in a recent interview with Reinsurance News.
During the discussion, DeMont delves into a range of topical issues, including the key factors currently impacting insurers’ capabilities from a balance sheet perspective.
The executive noted that with UK pension risk transfer volumes expected to remain elevated into 2026, insurers’ ability to compete in the PRT market “fundamentally” depends on capital efficiency and the ability to match long-term liabilities with appropriate structural assets.
“Defined benefit plan funding levels have continued to improve in recent years, driven by rising interest rates, bringing a large number of plans to the market,” Dement added.
He continued: “A key point today is that insurance companies are currently well capitalized and therefore have the ability to absorb the PRT pipeline.
“We are also seeing more new entrants to the market, as well as changes in ownership and strategy of existing players – dynamics we expect will support strong capacity and competitive demand for large annuity transactions.
“Taken together, these insurance market dynamics – high levels of capital and competition – should create compelling opportunities for pension schemes and sponsors considering risk transfer, both in terms of tight pricing and the ability to execute at scale.”
De Monte also discussed how collateral and liquidity factors affect pricing and trading structure in the PRT market.
The executive continued, “Collateral and liquidity are becoming increasingly important to how insurers consider pricing and deal structuring.”
DeMont explained that this dynamic is driven by, among other factors, insurers’ growing interest in credit and illiquid assets, which reduces their relative holdings of Treasury securities and cash as sources of liquidity.
Meanwhile, from a balance sheet and execution perspective, key constraints are reported to be related to regulatory solvency requirements, the availability of suitable matching assets and the maturity of insurers’ risk management and liquidity frameworks.
“We are seeing insurers adapting to liquidity needs with an increased focus on flexible collateral agreements (including the wider use of corporate bond-eligible CSAs where appropriate) and securities financing solutions,” DeMont said.
Elsewhere in the interview, Lloyds Banking Group’s insurance chiefs discussed how firms approach the procurement of long-term assets and the constraints and opportunities they see in asset-liability matching.
DeMont observed that large annuity liabilities are long-term, often tied to inflation, and have predictable cash flows, meaning insurers have strong interest in assets that are a good match for this scenario.
The executive said the trend away from traditional fixed income and toward longer-dated, inflation-linked real assets in sectors such as infrastructure, renewable energy and transportation continues.
He added that these assets tend to provide the maturity and cash flow characteristics sought by insurers and, more broadly, support UK capital markets by channeling institutional capital into long-term productive investment.
“However, at least in the UK, asset availability remains limited relative to demand. The challenge may be supply, as there are not always enough high-quality, investable infrastructure assets to meet demand,” DeMont added.
He continued: “Recently, the relative value of gilts and other sovereign bonds relative to credit has seen a return of interest in the asset class. Given the long-term nature of their liabilities, insurers are able to adjust their portfolios to take advantage of market opportunities.
“As a result, in recent years, they have focused more on improving the efficiency and returns of their current portfolios, in addition to finding new matching assets.”
Notably, the executive also touched on how Solvency II and broader prudential regulations are impacting insurers’ capabilities, capital efficiency and risk appetite for large-scale transactions.
DeMont confirmed that regulation is a key consideration for insurers in assessing capacity and capital in this market.
He continued: “Frameworks like Solvency II drive insurers toward long-term, high-quality assets with predictable cash flows, thereby determining how they invest and how large annuity transactions are structured.
“There is a clear focus across the industry on putting in place the right infrastructure and governance to operate at scale within these constraints. Insurers investing in areas such as asset solutions, collateral management, hedging and liquidity are generally better equipped to take on larger transactions while still meeting the standards expected by regulators and policyholders.
“In practice, this also reinforces discipline around risk selection and ‘execution readiness’ – operational capabilities, governance and the ability to demonstrate robust risk management increasingly differentiate who can consistently lead the largest deals.
“As regulatory expectations change, insurers that can respond quickly without compromising policyholder safety are best positioned to maintain strong pricing and reliable execution throughout the cycle.”
Concluding the interview, the Lloyds Bank insurance leader discusses how scrutiny of financed reinsurance remains high and how insurers can balance leveraging funding structures to build capabilities while maintaining capital efficiency and meeting regulatory expectations.
DeMont concluded: “This is something that the entire market, including regulators, is watching closely. Financing reinsurance solutions continue to provide additional capacity and insurers continue to be very picky about the counterparties they choose for such transactions and the collateral and guarantees they require from providers in their agreements.
“What is clear is that any sustainable growth in PRT capabilities needs to be built on strong risk management and solid governance. Those insurers that take a considered approach, ensure their structures truly reflect the underlying economics and withstand regulatory scrutiny are the ones best placed to support the long-term growth of the market.”
