Pension Risk Transfer Market Closes Strong at $14B in Q3

Following a record-breaking first half of 2024 for the U.S. pension risk transfer market, which closed at $26 billion through June 30, the third quarter also finished strong, according to Legal & General Retirement America’s November market update.

The third quarter closed at an estimated $14 billion in total premium—a 35% increase from the third quarter of last year, which landed at $10.6 billion.

A huge chunk of that total came from one deal: IBM’s $6 billion PRT with Prudential Insurance Co. of America in September made up about 42% of the third quarter’s market volume, according to L&G. The annuity purchase covered about 32,000 participants and beneficiaries of the IBM Personal Pension Plan, whose benefits began to be paid prior to 2016.

In terms of annual total market premium, L&G estimates that 2024 will finish at more than $50 billion. This would be higher than last year’s total of $45.8 billion and on par with 2022’s record-breaking total of $51.9 billion.

Meanwhile, there are already some high-profile names considering pension termination and risk transfers next year. Earlier this week, the Eastman Kodak Co. revealed in its Form 8-K with the Securities and Exchange Commission that it is reviewing plans to offload illiquid assets, which could lead to terminating the plan. Kodak, like many corporate pension plans, is currently in a funding surplus.

Insurance company L&G noted that higher pension plan funding levels continue to be a contributing factor to the strength of the PRT market, as pension plan sponsors are now in a better position to transact, and the average funding ratio for U.S. corporate defined benefit pension plans has remained relatively high in the past few months.

L&G’s Pension Solution Monitor found that the average funded status was at 110% in September. According to Mercer, which tracks the funded status of pension plans of companies in the S&P Composite 1500 Index, the funding ratio of these plans increased to 108% by the end of October, up from 107% at the end of September.

Additionally, MetLife’s 2024 Pension Risk Transfer Poll recently found that 93% of companies with de-risking goals plan to completely divest their DB plan liabilities, up from 89% in last year’s poll. The pension plan sponsors surveyed said they are receiving corporate pressure to de-risk due to the financial effects that plan volatility and associated risks have on balance sheets and income statements.

L&G expects 2024 to have a total of six transactions worth more than $1 billion, all of which have already closed, for a combined total of $22 billion. Some of the large PRT deals that have occurred this year include Verizon Communications Inc. ($5.9 billion), Shell USA Inc. ($4.9 billion) and 3M Co. ($2.5 billion).

While PRT deals worth more than $1 billion tend to drive the increase in market volume year over year, there has also been an upward trend in the number of PRT transactions worth from $500 million through $999 million. According to L&G, this market segment has almost doubled its transaction total from 2023.