Single Premium Pension Buy-out Sales Surpass $1.4B In 1Q

WINDSOR, Conn., May 24, 2017— U.S. single premium pension buy-out sales totaled $1.4 billion in the first quarter 2017, a 31 percent increase compared with prior year results, according to LIMRA Secure Retirement Institute’s quarterly U.S. Group Annuity Risk Transfer Survey.

A group annuity risk transfer product, like 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.

“This is only the second time first quarter buy-out sales have exceeded $1 billion since 2008 and marks the highest first-quarter results in at least 15 years,” noted Matthew Drinkwater, Ph.D., assistant vice president, LIMRA Secure Retirement Institute. “Generally, buy-out sales have strong seasonality. More recently, the Institute has observed broader, more consistent sales. Buy-out sales have surpassed $1 billion for eight consecutive quarters.”

Total assets of buy-out products were nearly $99 billion at the end of the first quarter 2017, nearly 11 percent higher than first quarter 2016.  

Recent Institute research finds 8 in 10 employers with a traditional defined benefit (DB) plan are interested in pension risk transfer (PRT), like a buy-out. Since 2014, there has been a significant shift in plan sponsors’ interest in PRT. Today, 4 in 10 plan sponsors are very interested in PRT, a 10 percentage-point increase from the results of a 2014 Institute study of DB plan sponsors. 

“While our research finds 8 in 10 employers with a DB plan are less than 90 percent funded, there are strategies a plan sponsor can use to improve their funded status, which can have significant impact on their bottom line,” said Drinkwater. “As plans approach full funding, they become attractive candidates for PRT. The Institute expects funding ratios to improve as interest rates increase, leading more and more plan sponsors to consider PRT in the next few years.”

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