Aon Projects PRT Market Will Again Climb Above $40B

After the U.S. pension risk transfer market saw another record-breaking year in 2023, with 773 transactions totaling $45 billion in premiums, Aon predicted that 2024 will be another year with significant PRT activity. 

The year is already off to a busy start, with recently announced deals from Shell (a $4.9 billion lift-out) and Verizon ($5.9 billion). 

Contributing Factors 

According to Aon’s latest U.S. Pension Risk Transfer Report, the PRT market will likely exceed $40 billion in premiums in 2024. Aon attributed the growing interest in PRT to three factors: funded status improvement, rising interest rates and increasing Pension Benefit Guaranty Corporation premiums.  

Over the last decade, appreciating equity values, increasing interest rates and plan sponsors’ contributions have improved the aggregated funded status of S&P 500 firms with pension funds to 101% at the end of 2023, according to Aon.  

As of the end of February, the 10-year Treasury yield was above 4.0%. Conducting a PRT when interest rates are higher means that the premium—purely from a dollar perspective—is lower, making it an attractive time to enter into a PRT. 

The PBGC also provides a backstop for pension plans in the event the plan sponsor becomes distressed. To fund this protection, the PBGC charges a flat rate premium per participant. In 2024, premiums have escalated to $101 per participant and $52 per $1,000 for the underfunded variable rate, Aon found. 

On the other side of the equation, insurers have become more interested in PRT deals, especially as new insurers have entered the market. There are currently 21 insurers in the PRT market, and in 2023, 15 insurers sold more than $1 billion in PRT premiums. 

Increased Scrutiny 

However, newer entrants to the PRT market, backed by parent companies associated with private equity, have caused some stakeholders to ask for a closer review of the Department of Labor’s Interpretative Bulletin 95-1, which gives guidance on selecting the “safest available” insurer for a PRT. 

The DOL is expected to send a report to Congress that will criticize the reliance on having life insurance companies pay monthly pension checks to retirees. 

However, Preston Rutledge, a former assistant secretary of Labor for the Employee Benefits Security Administration, argued in an opinion column that life insurance companies are built to provide financial protection and manage and pay monthly income for life. He wrote that insurance companies can provide financial protection “better than any employer can hope to do.” 

“Washington should be helping businesses transfer their retiree pension payments to the more financially secure, better-regulated life insurance industry, not making it harder,” Rutledge wrote. 

Several lawsuits have recently been filed against companies accusing them of selecting “risky” insurance companies for PRT deals. Two lawsuits have been filed against AT&T and one against Lockheed Martin Corp. for selecting Athene Annuity and Life Co. as their insurer. The Association of BellTel Retirees has also identified red flags in the recent Verizon PRT deal with Prudential Insurance Co. and RGA Reinsurance Co.  

Under the SECURE 2.0 Act of 2022, the DOL is supposed to re-evaluate IB 95-1 and recommend changes to the bulletin. The recommendations have not yet been released. 

Data from 2023 also revealed a surge in fourth quarter lift-outs. This is likely because plan sponsors often want to get the deal completed by the end of the calendar year to save on the following year’s PBGC premiums. Therefore, a similar trend at the end of 2024 could fuel continued PRT growth.