WINDSOR, Conn., August 31, 2017 – U.S. single premium pension buy-out product sales were $4.1 billion in the second quarter of 2017, more than three times higher than sales recorded in the second quarter 2016, according to LIMRA Secure Retirement Institute’s quarterly U.S. Group Annuity Risk Transfer Survey.
A group annuity risk transfer product, like a pension buy-out product, allows an employer to transfer all or a portion of its pension liability to an insurer. In doing so, an employer can remove the liability from its balance sheet and reduce the volatility of the funded status.
“This is the first time that second quarter buy-out sales have eclipsed $4 billion in the U.S. market, and is the highest second-quarter sales total on record since 2002,” noted Eugene Noble, research analyst, LIMRA Secure Retirement Institute. “Traditionally second quarter results have not been the strongest in this market but since 2015, we have seen second quarter buy-out sales surpass $1 billion each year.”
Total assets of buy-out products were nearly $99 billion at the end of the second quarter 2017, nearly 11 percent higher than second quarter 2016.
Recent Institute research finds that even with increases in the stock market, 8 in 10 defined benefit pension plans have a funding status of less than 90 percent, reflecting years of very low interest rates and past under-funding. Regardless of funding level, about 4 in 10 plan sponsors say they are very interested in PRT, and more than 80 percent of plan sponsors say they are at least somewhat interested in these products.
“Throughout the past decade, it has become increasingly difficult for employers to offer a defined benefit pension plan. Low interest rates, stock market volatility, increased longevity and rising Pension Benefit Guarantee Corporation premiums have become major obstacles for these plan sponsors to overcome,” said Noble. “In response to these events, many employers have chosen to freeze their DB plan and investigate the possibility of purchasing a pension buy-out product.”
Fifteen companies, representing 100 percent of the U.S. market, participated in this survey. A breakout of pension buy-out sales by quarter since 2012 is available in the LIMRA Fact Tank.
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