Editor’s Note: This is Part II of a two-part series highlighting some trends involving private-sector pension plans in the early part of 2024. Part I is here.
According to the U.S. Pension Risk Transfer (PRT) report Aon released March 20, there was a surge in PRT activity in the fourth quarter of 2023. And so far this year, they say, the U.S. pension risk transfer market has grown 36%.
PRTs usually involve buying annuities from a life insurance company to pay lifetime retirement benefits to at least part of a retirement plan’s participants, explain Jason Russell and Seth Almaliah of Segal in a recent blog entry.
Ongoing Trend
The growth in the number of PRTs is not a new trend. Aon has reported that PRTs increased 28% from 2021 to 2022; not only that, PRTs in 2022 amounted to $52 billion, which they said early in 2023 was “the highest Aon has recorded in a decade.” One of them—that concluded by IBM in September 2022—they cited as the second largest PRT transaction in U.S. history up to early 2023.
Legal & General Retirement America in late 2023 had anticipated that the PRT market would continue to be “promising” and suggested that if some of the deals whose closure was possible early in 2024 came to fruition, the first quarter of this year could be “unparalleled” regarding PRTs and that the entire year could be “strong” as well.
Sure enough, on Feb. 7, 2024, Shell USA, Inc. closed a PRT transaction worth $4.9 billion with Prudential Financial, Inc. Chief Investment Officer reports that according to Shell’s Form 5500, its pension plan had assets of $14.468 billion by the end of 2022. 
Verizon Communications Inc. on Feb. 29 filed information with the Securities and Exchange Commission (SEC) that reports that the company completed a PRT of almost $6 billion, which Chief Investment Officer reports involved the purchase of single-premium group annuity contracts with two insurers. The deals, which closed on March 6, were with Prudential Insurance Co. of America and RGA Reinsurance Co.
These two deals alone “have significantly increased the premium volume” for the first quarter of 2024, says October Three—which they say is especially noteworthy since the early quarters of the year are “traditionally a slower time.”
Results
With the Shell deal, Prudential Financial’s subsidiary, Prudential Insurance Company of America, will be responsible for paying pension benefits to approximately 21,500 Shell retirees. “Prudential is honored to help continue meeting the retirement security needs of Shell’s retirees,” said Alexandra Hyten, head of Institutional Retirement Strategies at Prudential, in a press release.
With the Verizon deal, says the SEC filing, Prudential and RGA both irrevocably guarantee, and assume the sole obligation to make, future payments to participants. Retirees who began receiving payments from the Verizon pension plans before Jan. 1, 2023, will receive benefits from those annuities beginning July 1.
But PRTs have more than the obvious results of transferring responsibility for making payments. October Three suggests that PRTs also lower plan costs. This, they say, is because with PRTs (1) plan administration costs fall, (2) overall plan liability falls because the plan is smaller and plan risk is lower, and (3) premiums paid to the Pension Benefit Guaranty Corporation are lower because the number of participants is lower.
Opportunity
Trends can expand opportunity—and the PRT market is an attractive one. Aon reports that the growth in PRTs has, in turn, led to an increase in the number of companies that will insure PRTs. According to their March 2024 U.S. Pension Risk Transfer report, in 2023, 15 insurers sold more than $1 billion in PRT premiums. They further report that there are 21 insurers that will handle them right now.
The expansion in the number of insurers who handle PRTs will help perpetuate such activity, argues Aon—the heightened insurer participation “ensures there is ample human and economic capital to support both current PRT demand and future growth.
- Log in to post comments