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Pension Risk Transfer Capacity Is Still Out There

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At least some big life insures may be eager to sell the big group annuities used in the pension risk transfer business.

Legal & General Group PLC and Global Atlantic Financial Group Ltd. have both put out signals that they’re still hungry for pension risk transfer deals.

(Related: Athene Has Big Fish on the Line: Earnings)

Legal & General reported last week that it completed eight pension risk transfer deals in March.

The eight deals involved pension plans in both the United Kingdom and in the United States, and they involved about $324 million in pension benefits obligations.

Legal & General noted that the members of its pension risk transfer team are working from home, as a result of the COVID-19 control efforts, but that the members of that team can still price, negotiate and sign pension risk transfer deals.

George Palms, president of the company’s Legal & General Retirement America, said in a comment on current conditions that the company has worked hard to maintain pension risk transfer service levels.

“The PRT market in the U.S. continues to be active, and we look forward to continuing helping plans de-risk over the year ahead,” Palms said.

In separate news, Global Atlantic announced today that it has obtained $1 billion in extra capital, from the new Ivy Co-Investment Vehicle LLC.

“Global Atlantic and Ivy will co-invest in new qualifying reinsurance opportunities sourced by Global Atlantic’s institutional reinsurance business,” Global Atlantic said. “These transactions include both reinsurance of life and annuity blocks and reinsurance of pension risk transfer transactions.”

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.

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