Oliver Wyman, Mercer Launch Tool for PRT Pricing

As the pension risk transfer market continues growing in the U.S., Marsh McLennan businesses Oliver Wyman and Mercer combined their actuarial experience and Mercer’s U.S. longevity dataset, with information on more than 1 million pension lives, to create a tool that better informs pricing of the risk-shifting transactions.

Chris Whitney, a life actuarial partner in Oliver Wyman, says the companies expect the primary users of the new tool to be the insurers and reinsurers in the PRT market.

“We think it is a game-changer,” Whitney says. “There is a lot of uncertainty in longevity, coming out of COVID,” and the costs of modeling it wrong in a PRT deal could be significant over the life of pension liabilities, he adds.

There are 21 insurers that sell annuities to defined benefit plan sponsors seeking to transfer some or all of their pension risk, according to a report this year from Insurance ERM.

Insurers in the US PRT Market

The new tool from Oliver Wyman and Mercer “incorporates socioeconomic and demographic factors to generate a granular view of longevity risk,” the companies stated in the announcement.

In 2023, plan sponsors and insurers completed a record number of PRT transactions—more than 800 deals for a total of $45B in premium, according to Mercer’s data. That trend has continued into 2024, with transactional premium in the first half of the year increasing by 14% year-over-year, according to LIMRA. Mercer’s researchers expect a significant number of plan sponsors are considering terminating their existing pension plans in the next 10 years and transferring the obligation and associated risk to an outside party.