Pension Plan Annuity Purchase Update

Pension Plan Annuity Purchase Update – Q2 2018

Oct 18, 2018 | Annuity Purchase, Industry Updates

Market Activity


Source: LIMRA Secure Retirement Institute

Through the first half of 2018, pension buy-out sales are once again on a record-breaking pace. Q2 sales eclipsed $8.2 billion which brings year to date sales to $9.6 billion. If Q3 and Q4 sales match last year, then total 2018 sales will surpass $27 billion.

What we’re seeing

Insurers are beginning to hit capacity constraints and are now being more selective with their opportunities due to the large number of cases still hitting the market. However, the addition of two new insurers – CUNA and Great American – late last year has increased the competitiveness of pricing, particularly on the smaller end of the market. For retiree only cases, we continue to see pricing at 98% of the accounting liability[1] on average. For plan terminations, average pricing is higher due to the deferred liabilities yet still competitive at about 103% on average.

What we’re hearing

“With funded status on the rise and companies accelerating contributions due to tax reform, 2018 will likely result in $25B to $30B of activity,” commented Alexandra Hyten, Vice President at Prudential. “2018 has proved to be another year of small balance retiree transactions with some plan sponsors coming back for their second or even third tranche of small balance participants.”

Marty Menin, Sr. Director in Pacific Life’s Retirement Solutions Division, also noted that, “Based on attendance at pension risk transfer sessions during this year’s Society of Actuaries conference, awareness of and interest in these transfers seems to have increased among actuaries in attendance.”

 

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

 

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