We are on Pega Unit testing feature and have pzPegaUnitEnabled privilege too.
I figured out the issue why we are not seeing 'Convert to test' option when we did run report definition. This is because we did taken pyReportEditorHeader section to our application ruleset to customize it 3 years back.
But pega updated this OOTB section recently by including pyRunRecordSecondaryButtonsExt section which is for showing 'Convert to test' option. And we don't have this change in our customized pyReportEditorHeader section.