Global credit rating agency Fitch Ratings expects activity in the pension risk transfer (PRT) market for UK life insurers to resume in 2026.
Fitch Ratings linked this expectation to continued demand from defined benefit pension plans seeking to reduce balance sheet risk and the potential resurgence of larger deals.
The agency noted that total PRT transaction volumes will fall from £49 billion in 2024 to approximately £38 billion in 2025, with the agency attributing the reduction primarily to weakness in the large transaction pipeline rather than a broader slowdown in activity.
Meanwhile, Fitch Ratings highlights that the number of transactions will increase to more than 350 by 2025, with the number of transactions expected to grow further, especially as smaller schemes remain active in the market.
Fitch said the profitability of the new PRT business will come under pressure in 2025. Fitch Ratings said this reflected a combination of lower transaction values, increased competition among insurers and continued tightening of credit spreads. Fitch added that these pressures were only partially mitigated by gains in effective books.
Looking ahead, Fitch expects competitive dynamics to remain strong across most deal sizes, driven by new players entering the market and continued product innovation. Fitch Ratings believes this environment is likely to continue to constrain new business margins in 2026, although rising business volumes should help support overall earnings.
Fitch also reported a slight decline in Solvency II capital ratios for several UK life insurers in 2025. Fitch Ratings attributed this to improved returns on shareholder capital and pressures related to developing new business.
Even so, Fitch notes that these ratios are generally well above management’s stated risk appetite thresholds. The agency further observed that IFRS shareholder equity declined for most insurance companies due to increased capital allocations and hedging strategies used to manage Solvency II volatility, which may introduce greater variability in IFRS reporting results.
Fitch expects the continued focus on shareholder returns, coupled with the execution of existing trading channels and increasing allocations to private markets, to exert some downward pressure on Solvency II ratios. However, Fitch maintains that capital buffers are likely to remain strong and support current rating levels.
Fitch Ratings highlights that UK workplace savings flows remain resilient, supported by the ongoing impact of auto-enrollment, a trend that Fitch Ratings expects to continue into 2026.
The agency also noted an improvement in retail wealth inflows, but warned that broader macroeconomic uncertainty, including geopolitical risks and rising interest rates, could adversely affect investor sentiment and the stability of inflows.
In its forward-looking assessment, Fitch Ratings identified several key areas to monitor through 2026. Fitch Ratings expects UK life insurers to continue increasing allocations to private assets, particularly long-term illiquid investments, driven by structural needs to match adjusted returns.
While Fitch Ratings believes the portfolio is likely to remain broadly diversified, it cautions that a meaningful shift toward more complex or lower quality illiquid exposures could weaken the underlying credit profile over time.
The agency also noted that the growing influence of global asset managers through equity stakes and strategic partnerships is increasingly influencing insurance companies’ investment strategies and capital allocation decisions.
Finally, Fitch Ratings highlights ongoing regulatory scrutiny around the credit risk assessment framework, the robustness of internal ratings methodologies, and the treatment of capital and risk management of funded reinsurance as important factors that could impact the industry’s future risk profile and business models.