Pension Risk Transfer Deals Hit Record Level in First Half of 2023

In the first half of 2023 plan sponsors completed a record 289 pension-risk transfer transactions totaling $22.4 billion in premiums, according to a report from Aon, the largest PRT adviser.

Aon predicted that the full year would see $40 billion in PRT deals, noting that the PRT market typically is busiest in a year’s second half. The report declared: “The pipeline continues to be robust, and we are hearing a lot of interest from plan sponsors. We expect a busy second half of the year with many lift-outs and plan terminations already in progress.”

The risk transfer field expanded in the year’s first two quarters with the number of insurers serving the market reaching 21. (According to Aon, it advised two-thirds of the deals in the period.) The report commented that “increased competition among PRT insurers drove improved transaction pricing and more sophisticated insurance.” Pricing was so competitive that many of the deals were for below the sponsors’ pension obligation.

The largest deal in the first half of the year was AT&T’s $8 billion transfer, covering 100,000 participants, the third largest transaction in PRT history. The second largest transfer was $2 billion from an unnamed sponsor, with two others, also unnamed, at $1 billion each.

Plan terminations, in which beneficiaries typically receive either an annuity or a lump sum, composed half of the deals, Aon reported. Lift-outs (in which a sponsor ships a portion of its plan to an insurer) was the next largest area, with buy-ins (the sponsor continues to administer the plan, but the insurer assumes longevity and investment risk) in third place.

According to the report, increased competition among PRT insurers drove improved transaction pricing and more sophisticated insurance solutions. Aon also noted that insurers increasingly were partnering up to bid on deals.

The Department of Labor is currently reviewing, and considering changes to, the standards plan sponsors must use when selecting an annuity provider for a pension risk transfer. The DOL is required to issue a report to Congress by the end of the year offering recommendations for an update to the standards.