Forecasts for jumbo group annuity sales are all over the place. (Credit: Shutterstock)
Many employers with defined benefit pension plans would love to put responsibility for the plans in the hands of a life insurer, by buying a large group annuity contract.
Predictions about how the current COVID-19, stock price and interest rate turmoil will affect the market for pension risk transfer annuities are… highly diverse.
Resources
- A copy of the Secure Retirement Institute group annuity sales report is available here.
- A copy of Milliman's May pension buyout market update is available here.
- A copy of the Society of Actuaries COVID-19 research brief is available here.
- An article about Moody's analysts thoughts about COVID-19 mortality and the pension risk transfer market is available here.
The life insurers in the market say demand is strong.
Analysts at Moody's Investors Service say big pension risk transfer units could help buffer some life insurers against the effects of COVID-19 mortality.
The authors of a Society of Actuaries research brief on the effects of the COVID-19 pandemic suggest that low interest rates, greater economic uncertainty, and concerns about life insurer stability could hurt pension risk transfer sales.
In theory, COVID-19 deaths could help improve life insurers' individual annuity business profitability, by reducing the longevity of some annuity holders. In reality, however, many individual annuities offer the annuity holder's own beneficiaries guaranteed death benefits, and that reduces that savings the issuer gets when the annuity holder dies.
Securities analysts and rating analysts have suggested that life insurers may get more of a boost from forces that reduce the longevity of the people in the pension plans involved in pension risk transfer transactions.
Mark Paracer, assistant research director at the Secure Retirement Institute, an arm of LL Global, says in a comment included in the organization's quarterly pension risk transfer annuity market report that the turmoil could hurt sales early in the year and help later.
"The uncertain timing of the recovery may give some employers reason to pause," Paracer says. "However, the costs of the PBGC [Pension Benefit Guaranty Corp.] premiums and administration costs will continue to drive companies toward pension risk transfer deals. Based on what we're hearing from carriers, we may see the volume pick up again later this year."
Milliman's Pension Risk Transfer Cost Data
Analysts at Milliman, an actuarial consulting firm, say the estimated retiree buyout cost as a percentage of accounting liability stood at 105.5 in April.
That's down from 105.7% in March, and it's down from over 106% throughout much of 2018, when the pension risk transfer market was seen as being very strong.
