Pension Risk Transfer Market Continues to Heat Up, According to Agilis

BOSTON, March 12, 2024 /PRNewswire/ -- Agilis Partners LLC, a leading investment, actuarial and risk management group, says that 2024 is shaping up to be another banner year for the pension risk transfer (PRT) market, with volumes nearing or exceeding records both on the number of transactions and the total premiums paid.

On the heels of the latest news that Verizon Communications Inc. has completed a $5.9 billion pension risk transfer, Agilis is preparing for a very busy PRT marketplace into 2024. For what is typically a slow time in the PRT market, the Verizon transaction coupled with Shell's announcement in February have already eclipsed the highest premium volume in history for Q1.  

"More and more companies that are analyzing the overall risk profile of maintaining pension plan benefits are realizing that the economics work in their favor to offload these to insurers," says Michael Clark, Managing Director at Agilis.

"Strong equity markets have boosted plans' funded status, and the continued higher interest rate environment has kept PRT pricing attractive to plan sponsors compared with the low rates we saw prior to 2022," according to Joe Anzalone, Head of Agilis's PRT Business. "These conditions are combining to keep interest in PRT very high for plan sponsors."

One of the interesting features of the recent Verizon transaction is the use of what's known as a split transaction where multiple insurers split the liability. In this case, both Prudential and RGA are assuming the liabilities from Verizon with each insurer taking on 50% of the responsibility for each retiree's benefit, with limited exceptions. While both companies are assuming an equal share of each benefit's liability, Prudential will be the responsible party for administering the monthly payments in total.

James Walton, Head of Agilis's PRT Independent Expert Services explains, "While split transactions are not new, we are seeing an increasing number of partnering between PRT insurers in this way. We are generally supportive of this approach as it effectively increases the level of State Guaranty coverage that participants experience in the event of insurer failure. This happens because participants have two separate smaller value contracts rather than one larger one, and each contract has separate State Guaranty Association coverage, effectively doubling the level of coverage behind the total benefit."

While 2023 PRT premiums were down from the record high realized in 2022, most insurers in the marketplace are expecting total premiums to pass that high water mark this year with total premiums over $50B. Not only that, but most are expecting PRT transactions to stay at or above these levels for the foreseeable future. Agilis expects that with the continued growth in PRT transactions, there will be continued new insurers entering the PRT space along with more innovation in how contracts are structured to meet the needs of pension plan sponsors and their participants.

Agilis is also closely watching for the release of the Department of Labor's report to Congress on their evaluation of the fiduciary standard known as Interpretive Bulletin 95-1. While Agilis doesn't expect wholesale recommended changes to the standard, Agilis PRT leadership does expect to see some suggested changes around administration capability evaluation and possibly specific mention on insurer structure and the use of reinsurance.

Agilis partners with organizations to design and implement custom solutions for their investments and liabilities while properly managing risk.

For more information about Agilis and Pension Risk Transfer, please visit https://agilis.llc/services/retirement-benefits/pension-risk-transfer/.

About Agilis 

Agilis provides actuarial and investment consulting using a strategic approach to create innovative solutions for our clients, leading them on the journey through implementation. Focused on solutions entailing outsourced CIO (OCIO), actuarial and investment consulting, derivatives management, specialty investment management strategies, pension administration services, annuity buyouts and plan terminations, and pooled employer 401(k) consulting, we find dynamic solutions that create financial momentum for our clients and create breakthrough strategies to seize growth opportunities. For more information, please visit https://agilis.llc/.

SOURCE Agilis