PPG Industries Inc. entered into a $309 million pension risk transfer transaction with Legal & General Retirement America and Reinsurance Group of America Inc., the insurers announced Wednesday
The lift-out covers more than 4,000 retirees from the Pittsburgh-based Fortune 500 company and beneficiaries with benefits under a defined benefit pension plan sponsored by PPG, a global leader in manufacturing paints, coatings and specialty materials.
A lift-out is a PRT transaction in which plan sponsors work with pension consultants or other experts to identify a subset of their plan population whose provided benefits—and the financial liability attributable to those benefits—are transferred to a private insurer, according to Nationwide Financial.
LGRA is the lead administrator and will be fully responsible for the service and administration of all participants transferred as part of the lift-out. A PPG spokesperson said in an emailed statement that the company settled the transaction in March for certain retirees and their beneficiaries who began receiving their qualified pension benefit prior to or around January 1, 2023.
PRT sales broke records once again in the first quarter of 2023, when U.S. single premium pension risk transfer sales reached $6.3 billion, a rise of 19% from Q1 2022 and the highest Q1 total recorded, according to data from LIMRA.
LGRA, in its Pension Risk Transfer Monitor, predicted about $23 billion in PRT deals will close in the first half of this year, compared to $17.6 billion in H1 2022 and $8.8 billion in H1 2021.
“We’re seeing continued positive secular trends for growth,” says George Palms, president of LGRA, in an interview. . “It’s always hard to predict where the market is going to land because the multi-billion-dollar, jumbo transactions are the ones that drive the growth, ultimately, in the market. But certainly, if you look at the numbers, … the signs point toward it being a very strong, if not record, year.”
Palms adds that the recent volatility in the stock market is positive in terms of plan sponsor demand for PRT transactions because it “demonstrates the value of having somebody else responsible for those liabilities and taking them over.”
“I think if you get to the point of something more catastrophic, like in the event that the U.S. were not to raise the debt ceiling, then all bets would be off and CFOs would be focusing on how they can get enough liquidity to get through the ensuing financial crisis that had been created,” Palms says.
This year’s second quarter already got a significant boost from an $8.05 billion transfer on May 3 by AT&T to insurer Athene Holding Ltd., owned by Apollo Global Management. The insurer will start making payments to approximately 96,000 AT&T beneficiaries in August, according to securities filings.
That annuity purchase was funded “directly by assets of the plan via the pension trust underlying the Plan and required no cash or asset contributions by AT&T,” the filing stated.
In split transactions like the PPG deal, Palms explains that the broker split the deal into two segments: one for which LGRA is responsible, and one for which RGA is responsible. A participant of the pension plan would receive a certificate from both LGRA and RGA, as they both share a portion of the liability.
“RGA has a 50-year history in the U.S. reinsurance industry and has supported PRT transactions globally for more than 15 years,” said David Lipovics, vice president of U.S. pension risk solutions at RGA, in a press release. “We are delighted to be bringing our exceptional financial strength and global expertise directly to U.S. pension plans.”
RGA has been a long-term reinsurance partner of LGRA, and the companies are expanding their decades-long partnership to support the U.S. PRT market with “strategic solutions for plan sponsors seeking to de-risk their pension plans,” according to a press release.
“We are proud to work together with RGA to protect the retirement income of over 4,000 of PPG’s retirees and beneficiaries,” said Palms in a press release. “LGRA is committed to providing exceptional customer service and ensuring a smooth transition for both PPG and the participants. This transaction comes at the close of another historic quarter in the PRT market, highlighting the growing role PRT is playing in the U.S. market.”
Tags: Defined Benefit Plan, Legal & General Retirement America, market volatility, Pension Risk Transfer, PPG Industries Inc., Reinsurance Group of America Inc.