Pension Risk Transfer Market Reaches $26 Billion in Transaction Volume in H1 of 2024

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 byLegal & 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.”

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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 recentlycompletedthe 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 saycompanies 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. Themost recent lawsuittargeted 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 have been completed year to date. Like in the U.S, PRT transaction volume was driven by deals 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 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.

Reporter Matt Toledo contributed to this story.

Related Stories:

Pension Risk Transfer Premiums Reach $14.6 Billion in Q1

Entergy Enters $1.2 Billion Pension Risk Transfer with MetLife

Unisys Announces $200M Pension Risk Transfer

Tags: Keith Golembiewski, Legal & General Retirement America (LGIMA), LGRA, LIMRA, Pension Risk Transfer, PRT

So maybe the weak July jobs-growth report was an anomaly. Or maybe it was a portent. Those are the uncertainties bedeviling investors ahead of the August report’s Friday release. The July report fueled anxieties about a downward economic spiral, which, of course, would be horrible for the stock market.

Job growth has decelerated in 2024, but the July report showed a worrisomely steep drop, with just 114,000 non-farm jobs created—off from 179,000 in June and 216,000 in May, not to mention the 215,000 average gain over the previous 12 months. From June to July, unemployment increased 0.2 percentage points to 4.3%, up from 3.5% 12 months before.

Hovering over the jobs report is the question of a recession, an anxiety that has ebbed and flowed in the public mind for the past two years. For investors, the most concerning aspect of the report is its influence on the stock market. In this first week of September, historically the worst month for equities, the S&P 500 has dipped, interrupting an August rally. By Thursday’s close, the index was off 2.6% since the last day of August.

For August, the economists’ consensus, per a Bloomberg survey, is that the U.S. economy added 163,000 jobs and the unemployment rate notched down to 4.2%. This would be the first drop in the jobless rate since March.

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The report, to be released at 8:30 a.m. ET on Friday by the U.S. Department of Labor, covers how many jobs were created the previous month, as well as worker pay boosts and the number of Americans unemployed.

To be sure, the July jobs report may have been distorted by bad weather, especially Hurricane Beryl, which battered the Gulf Coast that month, says Michael Arone, chief investment strategist for U.S. SPDR business at State Street Global Advisors, in an interview.

Meanwhile, there are several signs lately of a cooling labor market. Companies hired just 99,000 workers in August, fewer than July’s 111,000 ( a downward revision) and than the consensus forecast of 140,00, reported payrolls processing firm ADP. In addition, layoffs soared in August, reached their largest total for that month in 15 years, according to a survey from employment agency Challenger, Gray & Christmas.

The August jobs report surely will also have an effect on Federal Reserve policymakers’ September 17 to 18 meeting, when they will weigh how much to cut interest rates. The low July jobs report makes a half-point cut “more likely” than the more typical quarter-point move the Fed has used, commented Matt Sharp, co-founder and managing principal of Hamilton Point Investments, in a statement. “A weak August jobs report can certainly help the Fed make its case.”