MassMutual Positions for Pension Risk Transfer Annuities

The pension risk transfer (PRT) market is not something that retail agents know much about, because they don’t work in that market, or at least not very often. So last week’s news that MassMutual has named Lynn Esenwine as vice president of its pension buyout business may be of only passing interest to most.

However, the appointment may represent more than meets the eye.

First, a refresher. The PRT business is one in which insurance carriers take over some or all of a corporation’s defined benefit (traditional pension) obligations to retirees. The funding vehicle is typically a group annuity.

Since the PRT wing of the annuity business is institutional, advisors in the individual market rarely get involved. However, there are a couple of significant aspects to the MassMutual appointment that should be of more than passing interest to annuity advisors.

One is that the appointment is a sign of the growing importance of the PRT business. This is evident from the fact that MassMutual snagged Esenwine from Prudential Retirement where, according to the announcement, she was vice president in institutional pension risk transfer (PRT).

That’s important because Prudential is a Big Kahuna in PRT deals. In 2012, General Motors bought a group annuity from Prudential in a gigantic PRT deal. Later that year, Prudential did another big PRT deal, this time with Verizon, and in late 2014, Bristol-Meyers Squibb and Motorola each did big PRTs with Prudential.

Now, with the Esenwine appointment, MassMutual will have access to some of the expertise that Esenwine developed while working at Prudential.

Keith McDonagh indirectly alluded to that in announcing her appointment. "Lynn is leading this important business, as MassMutual looks to capitalize on the growth in the pension buyout market," said the senior vice president and chief financial officer for MassMutual Retirement Services, Enfield, Mass.

The value for annuity advisors is that the growth in this market, and the growing competitiveness in this market, shines a light on annuities. This should help to help increase public awareness of the word, and the concept.

The group annuities used for PRTs are different in several ways from, say, an individual income annuity. But the concept of a guaranteed income stream is the same.

The interest shown by advisors

Another noteworthy point for advisors is MassMutual’s comments on advisor interest in this market. McDonagh, in his statement, said Esenwine's appointment comes as MassMutual is seeing increased interest from advisors whose clients are seeking ways to reduce their long-term pension risks and costs.

He did not expand on the nature of that interest or identify the types of advisors who are showing this interest. But based on general market trends, the primary group would most likely be advisors who specialize in the retirement plan market, especially those working with large corporations with existing pension plans.

Other advisors may be keeping watch on the PRT market as well, however. Calls and emails to InsuranceNewsNet in the past year reveal that a small but growing contingent of advisors who serve medium-sized businesses also have their ears up on PTRs. This is especially the case with advisors who work with, or have personal connections to, mid-sized firms that have pension plan obligations the firms may want to transfer.

The questions that come into InsuranceNewsNet tend to be: “Can I get into this market, and where can I learn more?” The questions are understandable considering that, before 2012, PRTs were hardly ever discussed. Group annuities existed, but they didn’t get a lot of attention for PRT purposes.

Tone of the market

Plan sponsors are getting interested too. In fact, 80 percent of nearly 400 plan sponsors surveyed by LIMRA SRI in 2014 expressed interested in PRT products, the researcher said. These are sponsors who have a defined benefit plan.

Of those who were not very or not at all interested, the top reason was lack of knowledge, the study found. Other reasons were: using another method to address the risk, purchasing costs of annuities, and potential negative perceptions by stockholders.

Those who are interested are seeking to de-risk due in large part to the rising premiums for insurance obtained through the Pension Benefit Guarantee Corporation, LIMRA SRI said. In addition, they are concerned about administrative and investment costs of their current plans and about continued exposure to longevity and other risks.

It should be easier than before for the companies that are interested in PRTs to scope out their options. That’s because two new companies entered the market in 2014. This brings the total to 11 companies, said LIMRA SRI analyst Michael Ericson in commenting on the 2014 results.

InsuranceNewsNet Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at [email protected].

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Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].