Pension Risk Transfer Capacity Is Still Out There

Global Atlantic reported that it has reinsured a total of $30 billion in reserves in connection with life insurance blocks, annuity blocks and pension risk transfer arrangements.

The pension risk transfer market could benefit from two new developments: improved corporate pension funded status levels and the effects of COVID-19 on pension plan participant longevity.

One of the developments is an improvement in corporate pension plan funding status.

Treasury bond rates may have fallen in the past few weeks, and stock prices may have plunged.

But pension plan managers tend to invest heavily in corporate bonds. Because investors are more nervous about how well companies will keep up with bond payments, the interest rates companies are paying to borrow money are going up.

Thanks, in part, to higher corporate bond rates, pension plans' average monthly discount rate, which includes interest rates and other factors, increased to 3.39%, from 2.69%.

That helped push the Milliman "funded status" ratio for the 100 biggest U.S. corporate pension plans to 85.6%, from 82.1%, according to Milliman.

Zorast Wadia, author of the Milliman pension funded status report, acknowledged in a comment that the increase big pensions' funded status might surprise many.

"It's a stunning twist of fate that a month so turbulent as March — given the market conditions and the ongoing global pandemic — actually resulted in positive funding news for corporate pensions," Wadia said.

Ryan Krueger, a securities analyst at Keefe, Bruyette & Woods, suggested in a look at the possible effects of COVID-19 on mortality that the pandemic could improve results at life insurers' pension risk transfer operations, by reducing pension obligations.

— Read Prudential Looks Strong: Analysts, on ThinkAdvisor.

— Connect with ThinkAdvisor Life/Health on Facebook, LinkedIn and Twitter.