A Growing Interest in Pension Risk Transfer

Preparing for Pension Risk Transfer

Whether or not a buy-out is imminent, there are preparations a plan sponsor can undertake to make a future transaction easier and to shorten the timeline for execution. Prudential delivers a comprehensive roadmap for the buy-out process. Download the full paper here.

Interest in pension risk transfer continues to intensify among corporate
sponsors of U.S. defined benefit (DB) plans, as plan sponsors are looking
for ways to reduce both balance sheet liabilities and funded status volatility.
Against the backdrop of significantly increasing Pension Benefit Guaranty Corporation (PBGC) premiums due to recent legislation, as well as new mortality assumptions that increase DB plan liabilities, the market for buy-out solutions is steadily developing.

 

United States Single Premium Buy-out Sales

Single premium buy-out sales in U.S. since 2002.
2002200320042005200620072008200920102011201220132014
$1,554.40 $1,661.1 $1,271.60 $777.10 $1,816.70 $2,882.4 $2,489.20 $1,231.00 $851.70 $846.80 $35,980.8 $3,841.8 $8,469.5
Source: LIMRA Group Annuity Risk Transfer Survey, 4th Quarter 2015
United States Single Premium
Buy-out Sales*
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Prudential has completed large buy-out transactions with General Motors, Verizon, Motorola, Bristol-Myers Squibb, Kimberly-Clark, Timken, Philips, and J.C. Penney. These transactions, totaling approximately $42 billion, firmly re-established a U.S. market for buy-out solutions that had been largely dormant since the 1990s. Although news coverage focuses on the “jumbo” transactions, the stepped-up activity in the buy-out market has not just been for large companies. Transaction volume in the small to mid-market has also increased.1 Many other companies that have not yet transacted are considering buy-out  solutions. In a recent survey of senior financial executives, 55% indicated that they are likely to transfer DB plan risk to a third-party insurer within the next two years.2

REFERENCES

    • 1.LIMRA, February 2016
    • 2.Prudential and CFO Research Services survey of senior finance executives, August 2015.