Pension Plan Annuity Purchase Update

Pension Plan Annuity Purchase Update – Q1 2020

May 26, 2020 | Annuity Purchase, Industry Updates

Market Activity

Source: LIMRA Secure Retirement Institute

Total pension buyout sales totaled $4.5 billion in the first quarter of 2020, a decrease of 6% compared to the first quarter of last year but still only the second time first quarter sales in a given year have eclipsed $4 billion. 77 total buyout contracts were sold in Q1 2020 which matched the total number sold in Q1 2019. The number of buyouts in 2020 is expected to decline due to the economic impact of COVID-19.

What we’re seeing

Some clients are delaying buyouts due to plan funding levels decreasing sharply since year end 2019. Plan termination buyouts originally scheduled for Q2 will likely be completed later this year. However, retiree carve-outs may be pushed further down the road, as plan sponsors deal with more pressing issues from the COVID-19 fallout. However, for deals that were still completed, pricing remained very competitive. For retiree only cases, pricing continues to average about 99% of the accounting liability[1], while plan termination cases average about 100%[2].


What we’re hearing

Despite the economic decline and remote working conditions due to COVID-19, insurers maintain a business-as-usual status with regard to pension risk transfer and still have a strong appetite for new business. The number of buyouts has decreased significantly, but the expectation is the flow will pick up later this year as plan sponsors adapt to the “new normal” conditions due to COVID-19.

In addition, a new insurer is still slated to enter the market this summer (originally scheduled for this spring), targeting both retiree only and plan termination cases in the $25 to $250M range. This will further increase competition and will bring the total number of insurers in the marketplace to 17.

[1] Measured using FTSE curve and best estimate of underlying mortality.

[2] Based on plan demographics and the mix of deferred and in-pay annuities.

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