The Bank of England has warned firms offloading pensions in a multibillion-pound market that they need to improve the way they manage reinsurance risks.

The Prudential Regulation Authority, part of the BOE, wrote to life insurers on Thursday to highlight its concerns about the use of “funded reinsurance,” where insurers pay upfront to transfer the risk of pensioners living longer to another firm.

If one of the major reinsurers were to fail, the original insurer could be exposed to “sub-optimal portfolios” when the liabilities return to them, according to the PRA. It also found issues with some firms’ preparedness to deal with such a situation.

“These shortcomings create risks to the PRA’s safety and soundness and policyholder protection objectives, and we need firms to take actions to improve the way in which they manage the risks in these transactions if they plan to participate in this market,” the regulator said in the letter.

British businesses that once offered workers generous defined benefit pensions are increasingly looking to transfer the future costs to an insurer. Firms transferred £44.7 billion ($57 billion) of risks last year, according to actuary Lane Clark & Peacock.

The PRA last year warned companies about the risks that remain even after a transfer deal.

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