Driven by an increased number of plan sponsors looking to terminate their traditional defined benefit pension plans, the U.S. pension risk transfer market closed at $26 billion in the first half of 2024, according to new data released by Legal & General Retirement America, an increase of about 15% from the first half of 2023 ($22.5 billion).
The increase in market volume can largely be attributed to transactions that exceed $1 billion, of which there have been five so far this year -- totaling approximately $16 billion. Over the last three years, large transactions have made up around 50% of the market, according to LGRA.
LIMRA also announced Thursday that in the year's second quarter, total PRT premiums fell 31% year-over-year to $11.3 billion.
"Although second quarter 2024 premium results fell short of last year, historically these results are strong," said Keith Golembiewski, LIMRA's assistant vice president of annuity research, in a statement. "In addition, the number of contracts sold increased 10% year over year, indicating broad plan sponsor interest continues. LIMRA is forecasting strong PRT sales in the second half of 2024."
The three largest publicly announced U.S. transactions so far this year have been Verizon Communications Inc. ($5.9 billion), Shell USA Inc. ($4.9 billion) and 3M Co. ($2.5 billion).
Prudential Insurance Co. of America also recently completed the industry's first PRT involving a multiemployer plan. The $221 million transaction will provide pension benefits for 87,000 retirees and beneficiaries at Sound Retirement Trust, a multiemployer plan based in Seattle.
LGRA found that slightly more plan sponsors are looking to terminate their pension plans this year, as 66% of the transactions that occurred in the first half of this year were plan terminations, compared with 54% in 2023. High corporate pension funding ratios also likely play a role in the growth, as plan sponsors with fully funded or overfunded plans are in a good position to conduct a PRT.
The average U.S. pension funding ratio continued to soar: 109.5% in July, according to LGRA's Pension Solutions Monitor.
However, with the Federal Reserve planning to cut rates this month and a poor market performance in the beginning of August, experts say companies considering a PRT should do so sooner rather than later.
In addition, the increased number of insurers participating in PRTs has heightened competitiveness and expanded capacity in the market, with 21 insurers currently involved and more entrants expected.
Meanwhile, employers continue to face lawsuits attacking their completion of PRTs with Athene Annuity and Life Co. The most recent lawsuit targeted Bristol-Myers Squibb Co. and its independent fiduciary, State Street Global Advisors Trust Co.
Looking ahead, LGRA reported that it expects at least two more transactions worth more than $1 billion to close by the end of the year.
LGRA also noted increased activity from midsized pension plans compared with previous years. For example, LGRA found approximately 20% more transactions valued between $50 million and $500 million when compared with the last five years.
"We anticipate the full year market volume to exceed $50 billion, surpassing 2023's volume of $46 billion and nearing the record-setting volume in 2022 of $51.9 billion," the report stated.
In the U.K. 20 billion pounds ($26.35 billion) worth of PRT buy-in and buy-out transaction had been completed year to date. Like in the U.S, PRT transaction volume was driven by transactions over $1 billion. In the first half of the year, five transactions worth over $1 billion each were completed, totaling $16 billion.
LGRA expects the U.K. PRT market to exceed 40 billion pounds in transaction volume this year. The firm noted that there are 20 billion pounds of active deals in the pipeline and expects most of these transactions to close this year.
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