Pension Risk Transfers Hit Highest Level Ever

The pension risk transfer trend keeps rolling along, with 2023’s first half recording a record: 289 transactions totaling $22.4 billion in premiums, according to a report from Aon, the largest PRT adviser.

Aon predicted that the full year would see $40 billion in PRT deals, noting that the PRT market typically is busiest in a year’s second half. The report declared: “The pipeline continues to be robust, and we are hearing a lot of interest from plan sponsors. We expect a busy second half of the year with many lift-outs and plan terminations already in progress.”

The risk transfer field expanded in the year’s first two quarters with the number of providers reaching 21. (Aon indicated that it had advised two-thirds of the deals in the period.) The report commented that “increased competition among PRT insurers drove improved transaction pricing and more sophisticated insurance.” Pricing was so competitive that many of the deals were for below the sponsors’ pension obligation.

The largest deal in the first half of the year was AT&T’s $8 billion transfer, covering 100,000 participants, the third largest transaction in PRT history. The second largest transfer was $2 billion from an unnamed sponsor, with two others, also unnamed, at $1 billion each.

Plan terminations, in which beneficiaries typically receive either an annuity or a lump sum, composed half of the deals, Aon reported. Lift-outs (in which a sponsor ships a portion of its plan to an insurer) was the next largest area, with buy-ins (the sponsor continues to administer the plan, but the insurer assumes longevity and investment risk) in third place.

The report stated that increased competition among PRT insurers drove improved transaction pricing and more sophisticated insurance solutions. Aon also noted that insurers increasingly were partnering up to bid on deals.