Pension Risk Transfer Market Sets Q1 Record

The first quarter of this year marked was the largest first quarter on record, as estimated $15 billion in pension risk transfers closed in the period. According to Legal & General Retirement America, the activity significantly outperformed the previous record of $6.3 billion in 2023 and nearly triple the 2022 amount of $5.3 billion.

LGRA found that jumbo transactions continue to be the driving force behind the market’s strong performance, as two transactions that closed in Q1 totaled $11 billion. Verizon Communications Inc. completed a $5.9 billion PRT deal with Prudential Insurance Co. of America and RGA Reinsurance Co. in March, and Shell USA, Inc. completed a $4.9 billion deal with Prudential in February.

In addition, LGRA stated in its new market update that U.S. pension funding status remains high and plays a role in the number of transactions that come to market. For example, in April 2024, the U.S. pension funding ratio was 107.6%, according to LGIM America.

As funded levels stay elevated, LGRA predicts that there will be continued demand for de-risking from plan sponsors who are in a good position to complete a PRT.

However, in an analysis of U.S. pension funded status in April, actuarial and investment consulting firm Agilis cautioned that pension plan sponsors looking to go through with a PRT may “want to do so quickly,” as the likelihood the Fed will drop interest rates this year could rise depending on how economic data turns out in the coming weeks and months.

Looking ahead, LGRA estimated the first half of 2024 will close at around $22 billion in PRT transactions, which is in line with what was seen in the first half of 2023. With jumbo transactions driving the most total market volume, LGRA expects at least three more to close this year.

Aon’s recent U.S. Pension Risk Transfer Report predicted that the PRT market will likely exceed $40 billion in premiums by the end of 2024. In addition to funded status improvement and higher interest rates, Aon attributed growing interest in PRTs to increasing Pension Benefit Guaranty Corporation premiums. In 2024, premiums rose to $101 per participant and $52 per $1,000 for the underfunded variable rate, Aon found.