Pension Risk Transfer Still Attractive Derisking Option, Despite Market Volatility

Corporate pension funding ratios and the the interest rates used to value their liabilities took a hit, but the time to derisk may be now. 



As a result of poor stock market returns over the last few weeks, pension funding has taken a hit, posing challenges for plan sponsors and asset allocators looking to de-risk and potentially conduct a pension risk transfer.

According to October Three Consulting, President Donald Trump’s initial tariff announcement triggered a sharp decline in interest rates used for pricing annuities at the start of the month, making annuities more expensive, but the subsequent 90-day pause in the largest tariffs has driven a notable rebound.

The shift presents a “critical window of opportunity” for plan sponsors to strategically carve out some, or all, of their retirees in a PRT, according to October Three.

Mark Unhoch, A partner in October Three Consulting, says depending on what corporate pension plans were invested in, and if they were following a liability-driven investing strategy, they may have fared better than others over the last few weeks. By matching assets and liabilities, LDI strategies aim to reduce the volatility of funded status and protect against risks like interest rate fluctuations.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news.

“[Pension plans] saw a double whammy at the beginning [of the month], where interest rates and the market dropped,” Unhoch says. “But interest rates have come back to where they were before the drop…”

On the 10-year Treasury note, interest rates are around 4%. Unhoch says while insurance companies do not use the Treasury as a credit rate, it is a good gage of where their rates are. 

October Three found that annuity purchase interest rates saw a modest increase in March. Since last month, the average duration 7-year annuity purchase interest rate rose six basis points, and the average duration 15-year annuity purchase rate rose 17 basis points.  

Unhoch says after canvasing insurance companies, October Three found that plan sponsors paused over the past month when it comes to conducting PRTs and are waiting to see what is happening with the markets before looking to transact. But because of the interest rate turnaround, Unhoch says he has some clients who are now looking to transact as soon as possible.

“The insurance companies are kind of light right now, because people have taken a pause, so it is a good time to transact if you can act quickly,” Unhoch says. “If you are fully funded or even over funded, this may be a good time to say, ‘I need to immunize my portfolio and my liability,’ and then turn into somewhat of an LDI strategy.”

LIMRA recently reported that total U.S. single-premium PRT sales hit $51.8 billion in 2024, a 14% increase from the prior year’s results. Unhoch notes that the first quarter of 2025 appeared to be relatively normal for PRTs, with about $5.5 billion in total sales.

Meanwhile, underfunded plans are likely facing challenges due to the recent market downturn, and they may face increased required contributions in the years ahead. Given the recent funding losses, October Three argued that it is important for plan sponsors to evaluate the available opportunities and strategies to mitigate risk for the plans.

The first step for sponsors would be to consult with an annuity broker to assess and discuss the evolving market conditions and determine what makes most sense for the plan, according to October Three. 

Interpretive Bulletin 95-1, issued by the Department of Labor, outlines the formal fiduciary responsibilities under the Employee Retirement Income Security Act that a plan sponsors must follow when selecting an annuity provider for a defined benefit plan. Rather than focusing solely on price and insurance ratings, fiduciaries are required to prioritize the best interests and safety of plan participants when selecting an annuity provider. 

Related Stories:

Corporate Pension Funding Ratios Continued to Decline in March

Broad PRT Market Growth Continued in 2024

Legal & General to Sell 20% Stake in PRT Business to Meiji Yasuda

Tags: , , , ,

Banks With Decarbonization Efforts Perform Better, Research Finds

ISS STOXX found correlations with decarbonization, ESG performance and financial performance.



Banks and institutions that have a greater focus on managing their value chain emissions have better environmental, social, governance and financial performance,
new research from ISS STOXX and its ISS ESG unit found.  

CIO is owned by ISS STOXX.  

According to the research, banks that manage their corporate value chain emissions better than others tend to have higher ESG scores, as well as higher financial profitability scores.  

The research evaluated more than 300 banks around the world according to three ISS ESG corporate rating indicators; the carbon footprint of the value chain, which assesses value chain emissions disclosure, their portfolio decarbonization strategies and their emissions monitoring and reporting. 

Want the latest institutional investment industry
news and insights? Sign up for CIO newsletters.

The climate impact of the corporate value chain is measured on a scale of 1.0 to 4.0, with 4.0 indicating higher performance. ISS ESG measures banks’ ESG scores through a proprietary methodology, measured on a scale of 0 to 100.  

According to the research, banks with higher scores on the climate impact of the corporate value chain indicator had higher ESG score performance. The research found a correlation of 0.79 between the two factors.  

Large-cap banks tended to have higher scores across most metrics, which ISS attributed to the larger banks having more resources for implementing decarbonization strategies.  

The research also found that banks with higher scores across the indicators had higher ISS economic value-added margins, or the profit margin after operating expenses, taxes and capital charges have been paid. These banks also had higher average financial profitability ratings, or the percentile score of the stock’s profitability level, based on its EVA as a percentage of sales and capital. 

Banks with an average portfolio decarbonization strategy score greater than 2.0, on a scale of 1.0 to 4.0, had an average financial profitability rating of 2.84 and an average EVA margin of 7.50%. Banks with a portfolio decarbonization strategy score of less than 2.0 had an average financial probability rating of 2.72, and an average EVA margin of 6.16%.  

“Banks that outperform others in managing their portfolio emissions not only tend to be rated higher in the ISS STOXX ESG universe but also tend to have a superior financial profitability score, according to our proprietary EVA metrics,” the report said.  

Related Stories: 

AI Energy Drain Among Issues Facing ESG Investors 

Identify Risk and Opportunity Through Sustainability Data 

ISS ESG Unveils Climate Reporting Requirement Dataset 

Tags: , , , , , ,

«