Pension Buy-Out Contracts Set Record In 2019: Secure Retirement Institute

A record-breaking 501 U.S. single-premium pension buy-out contracts were sold in 2019, totaling $28 billion, according to the Secure Retirement Institute U.S. Group Annuity Risk Transfer Sales Survey.

The number of contracts sold in 2019 increased 2%, compared with 2018 results. Total 2019 sales were 5% higher than prior year and represent the highest annual buy-out sales total recorded since 2012.

“There was broad growth in the pension risk transfer market in 2019. The number of contracts sold in both the buy-out and buy-in markets surpassed existing records. Three quarters of the companies reported year-over-year sales increases in 2019,” said Mark Paracer, assistant research director, SRI. “We expect sales to continue to grow in 2020. The rising operational costs and increased market volatility are favorable for pension risk transfer transactions as plan sponsors look for opportunities to de-risk their defined benefit plans.”

In the fourth quarter, buy-out sales were $11.3 billion, 6% higher than fourth quarter 2018 results. It is the 20th consecutive quarter of $1 billion+ sales and the highest quarter recorded since fourth quarter 2012. Total assets of buy-out products increased to $153 billion, a 13% uptick from fourth quarter 2018.

The single-premium buy-in product sales had a record quarter. In the fourth quarter, buy-in sales were $970 million, the highest level recorded since SRI has been tracking these sales. For the year, there were six single premium buy-in sales, totaling $1.9 billion. This doubles the annual sales record set in 2018.

“The pension buy-in market is a small but growing market,” noted Paracer. “While there have been only 20 buy-in contracts issued in the U.S., five of the past six quarters have had at least one buy-in contract sold.”

Total group annuity risk transfer sales in the fourth quarter 2019 were $12.4 billion, 7% higher than fourth quarter 2018 sales. For the year, total group annuity risk transfer sales were $30.5 billion, up 8% from 2018 results.

A group annuity risk transfer product, such as a pension buy-out product, allows an employer to transfer all or a portion of its pension liability to an insurer. In doing so, an employer can remove the liability from its balance sheet and reduce the volatility of the funded status.

Seventeen companies participated in this survey, representing 100% of the U.S. Pension Risk Transfer market.