NISA Investment Advisors Issues New Analysis Examining How "Pension Risk Transfers (PRT) May Be Transferring Risk to Beneficiaries"

-- Economic analysis reveals a 14% range in credit risk costs among nine PRT insurance providers --

-- Pensioners are not currently compensated for bearing the risk of lower quality insurers because their benefits are fixed --

ST. LOUIS, Oct. 12, 2022 /PRNewswire/ -- NISA Investment Advisors, LLC ("NISA") released a framework to help corporate pension plans and their fiduciaries discern their "Safest Available" annuity options under the Employee Retirement Income Security Act ("ERISA"): "Pension Risk Transfers (PRT) May Be Transferring Risk to Beneficiaries." The analysis yielded surprising results, including a 14% range in credit risk costs among nine PRT insurance providers.

View PDF

With annual PRT transactions running approximately $40 billion, the disparity puts pensioners at risk of losing as much as $5 billion per year in uncompensated credit risk. A considerable challenge is that pensioners' benefits are fixed -- they are not compensated for bearing the risk of lower quality insurers.

Potential remedies include reducing the list of prospective PRT insurance providers to those that corporate pension plans and their fiduciaries can more comfortably group as all "safest available." Another solution could be to require lower quality insurers to increase benefits by an amount that provides pensioners the appropriate compensation for this forced-upon credit risk.

According to David G. Eichhorn, CFA, NISA's CEO and Head of Investment Strategies:

• "Choosing an annuity provider for a PRT requires that fiduciaries conduct an in-depth review of the insurance company's creditworthiness."
• "We believe that the readily available bond market pricing of credit risk provides fiduciaries with an extremely useful, if not outright necessary, tool to evaluate potential annuity providers."
• "In our opinion, to cavalierly ignore the collective wisdom of the multitude of market participants who seek to price credit risk daily would seem imprudent."

Please visit our website by clicking here to view previous NISA Perspectives posts.

About NISA Investment Advisors, LLC
NISA Investment Advisors, LLC is a registered investment adviser, and manages assets for some of the largest institutional investors in the U.S. The firm is 100% employee-owned and based in St. Louis, Missouri. Client portfolios include investment-grade fixed income, derivative overlay and equity investments. As of June 30, 2022, NISA managed $277 billion in physical assets and $168 billion in derivative notional value in separate account overlay portfolios.

For more information, visit www.nisa.com and see us on LinkedIn.

All investments entail risk including loss of principal; derivatives investments could lose more than the amount invested. 

Contact: 
Michael Herley for NISA Investment Advisors, LLC
[email protected] or 203-308-1409

SOURCE NISA Investment Advisors, LLC