Pension Plan Annuity Purchase Update Q2 2023

Market Activity

Source: LIMRA Secure Retirement Institute

Pension buyout sales continued to remain strong in Q2 2023,  totaling $14.6B in the second quarter, which represents the highest volume ever recorded in Q2 and an 18% increase compared to Q2 2022 sales of $12.3B. There were 165 buyout contracts sold in Q2 2023 compared to 146 in Q2 2022. In the first half of 2023, pension buyout sales totaled $20.9B, up 40% from the same period last year. The outlook for the rest of the year remains strong, as is usually the case for the second half of the calendar year.

What we’re seeing

Pension buyout activity remains very active in Q3 after a strong first half. High interest rates continue into the third quarter, which have generally improved plan funded status and made group annuities more attractive. Some insurers are reaching capacity constraints and are increasing minimum thresholds or beginning to decline otherwise attractive deals. Despite this, pricing remains very competitive. For retiree only cases, pricing continues to average 99% of the “fair” value of benefit liability1, while plan termination cases which include in-pay and deferred annuities average approximately 101%2.

What we’re hearing

Plan terminations and retiree carveouts continue to remain attractive to plan sponsors due to high interest rates and PBGC premium savings. Pension risk transfer activity is expected to remain strong throughout the remainder of 2023. Although the high volume of cases has led to some insurers declining otherwise attractive cases due to capacity constraints, other insurers still have capacity and continue to bid competatively. A few new insurers began bidding on cases earlier in 2023, and are expected to continue to grow their line of business in the second half of 2023. These new entrants should continue to open up capacity and drive attractive pricing for plan sponsors looking to derisk their pension plans.

[1] Measured using FTSE curve and best estimate of underlying mortality.
[2] Based on plan demographics and the mix of deferred and in-pay annuities.

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