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U.S. Single Premium Pension Buy-out Sales Top $13.7 Billion in 2016, LIMRA Secure Retirement Institute Reports
3/1/2017
WINDSOR, Conn., March 1, 2017— U.S. single premium pension buy-out sales totaled $13.7 billion, almost one percent higher than prior year and the second highest annual total recorded, 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.
In the fourth quarter, single premium pension buy-out sales were $5.8 billion, which is level with 2015 sales. This marks the seventh consecutive quarter to exceed $1 billion in sales, a trend never seen since the Institute began tracking sales in the 1980s.
“Buy-out sales have strong seasonality, usually resulting in higher sales in the fourth quarter. However 2016 proved to be an exception to this trend with fourth quarter results slightly lower than the third quarter sales,” noted Matthew Drinkwater, Ph.D, assistant vice president, LIMRA Secure Retirement Institute. “In recent years, jumbo plan sales (more than $1 billion) tend to swing quarterly results. While there was only one jumbo sale in 2016, the Institute continues to see broad growth across the industry and many of the sales came from smaller plans. Participating companies reported having sold more than 383 contracts in 2016.”
Single-premium buy-in product sales were $15.7 million in 2016, up 118 percent from 2015. There were three single-premium buy-in contracts sold in 2016.
“Continued market volatility and low interest rates coupled with PBGC premium increases have drawn more employers to explore transferring their pension risk to an insurer,” said Drinkwater. “New Institute research finds about 1 in 3 employer-sponsored pensions have a funding status of 80 percent or more. 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.”
Total assets of buy-out products were nearly $99 billion at the end of the fourth quarter 2016, an increase of 9 percent.
Thirteen companies, representing more than 95 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 Fact Tank.
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About LIMRA Secure Retirement Institute
LIMRA Secure Retirement Institute provides comprehensive, unbiased research and education about all aspects within the retirement industry to improve retirement readiness and promote retirement security. For more information, please visit www.secureretirementinstitute.com.