Pension Plan Annuity Purchase Update

Pension Plan Annuity Purchase Update – Q2 2019

Sep 23, 2019 | Annuity Purchase, Industry Updates

Market Activity

Source: LIMRA Secure Retirement Institute

For the fifth consecutive quarter, total pension buyout sales surpassed $4.7 billion. This is down 42% compared to Q2 2018 when FedEx completed a $6 billion transaction. However, a total of 112 buyout contracts were sold in Q2, bringing 2019 sales to 190 contracts, an increase of 32 compared to first half 2018. Total 2019 sales are estimated to surpass $25.5B, which could end up being less than the total sales from 2018.

What we’re seeing

We continue to see competitive pricing in 2019 for both retiree carveouts and plan terminations. For retiree only cases, pricing continues to average about 99% of the accounting liability[1], while plan termination cases average about 101%[2]. Regardless of premium size, plan sponsors can expect competitive bidding. In past years, insurers have faced capacity constraints late in the year with Q4 activity driving the market. However, advisors have done a better job spreading transactions throughout the year, so insurer capacity is expected to be less of a concern this year compared with prior years.

What we’re hearing

Insurers expect the pension buyout market to continue to grow. With over $3T of total corporate pension liability still in the US today, the wave of activity the past few years has yet to put a dent in total opportunity. Two thirds of plans are now frozen or closed, and it is expected that plan sponsors will continue to de-risk and ultimately terminate their plans.As a result, the pension buyout market will continue to be busy for the foreseeable future.

[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.


R&M Newsletter

Subscribe to receive news and updates in the defined benefit, defined contribution, or investment areas of the retirement industry.