Single Premium Pension Buy-Out Product Sales Break Record In 2Q

WINDSOR, Conn., Nov. 16, 2017—U.S. single premium pension buy-out product sales were $6.4 billion in the third quarter of 2017, a 7 percent increase compared with prior year.  This is the tenth consecutive quarter of sales over $1 billion, according to LIMRA Secure Retirement Institute’s quarterly U.S. Group Annuity Risk Transfer Survey.

Year-to-date, single premium buy-out product sales were $11.9 billion, 47 percent higher than the same period in 2016.

“Following record sales in the second quarter, single-premium buy-out sales marked the highest third-quarter sales total on record since the late 1980s,” noted Eugene Noble, research analyst, LIMRA Secure Retirement Institute. “Unlike quarters where one or two large contracts propelled the growth, the majority of companies reported positive growth in the third quarter.  With new entrants and strong economic indicators, the Institute is forecasting 2017 sales to exceed $19 billion and 2018 sales to top $20 billion.”

Total assets of buy-out products were over $104 billion at the end of the third quarter 2017, more than 10 percent higher than prior year. Survey participants reported 227 contracts sold in the first three quarters of 2017.

Despite record stock market gains, less than 1 in 5 U.S. employers with a defined benefit plan have a funding status of 90 percent or higher. Institute research finds 8 in 10 employers - regardless of funding level – are interested in pension risk transfer.

“Over the past two decades, the number of U.S. employers sponsoring defined benefit plans has declined. Low interest rates, stock market volatility, increased longevity and rising Pension Benefit Guarantee Corporation premiums have become major obstacles for these plan sponsors to overcome,” said Noble. “We anticipate employers will continue to seek ways to mitigate the risks associated with a DB plan, including choosing to freeze their DB plan and purchasing a pension buy-out product.”

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.

Fifteen companies, representing 100 percent of the U.S. market, participated in this survey. A breakout of pension buy-out sales by quarter since 2012 is available in the LIMRA Data Bank.