Pension Plan Annuity Purchase Update

Pension Plan Annuity Purchase Update – Q2 2020

Oct 15, 2020 | Annuity Purchase, Industry Updates

Market Activity

 

Group annuity risk transfer sales ($ millions)


Source: LIMRA Secure Retirement Institute

The pension risk transfer market has been negatively impacted by COVID-19. Total pension buyout sales totaled $2.3 billion in the second quarter of 2020, a decrease of 46% compared to the second quarter of last year and the lowest quarterly total since Q1 2018. 72 total buyout contracts were sold in Q2 2020, a decrease of  35% compared to Q2 2019. Year to date sales of $6.7 billion are down 25% compared to the $8.9 billion sold in the first half of 2019.

 

What we’re seeing

Some clients that delayed buyouts due to COVID-19 related shutdowns earlier in the year are now completing their buyouts in Q3 and Q4, as they have adapted to remote working conditions. Second half sales will likely be more in line with recent years and should easily exceed the total of the first half of 2020. Pricing continues to remain 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 continue to maintain a business-as-usual status with regard to pension risk transfer and still have a strong appetite for new business. In addition, another new insurer has entered the market this fall, which further increases competition and brings the total number of insurers in the marketplace to 18.

[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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