Market Activity
Pension buyout sales continued to remain strong in Q2 2024, totaling $9.2B in the second quarter, a 37% decrease compared to Q2 2023 sales of $14.6B. There were 183 contracts sold in Q2 2024 compared to 165 in Q2 2023. In the first half of 2024, pension buyout sales totaled $23.4B, up 12% 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. As the Federal Reserve’s plan to lower interest rates in 2024 started in September, more plan sponsors are interested in getting into the market and taking advantage of the relatively high interest rates and PBGC premium savings. Some insurers are reaching capacity constraints and are increasing minimum thresholds or beginning to decline otherwise attractive deals. Despite this, pricing remains very competitive.
Litigation continues for class action lawsuits in 2024 currently involving multiple plan sponsors who have purchased annuity contracts through pension risk transfer transactions. A few plan sponsors have filed motions to dismiss the lawsuits, while new class action lawsuits against plan sponsors are still being filed. We have not seen this affect insurer or plan sponsor appetite for de-risking.
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.
Looking Forward
In the third quarter of 2024, plan terminations and retiree carveouts have continued to remain attractive to plan sponsors. Another super-jumbo transaction took place in the third quarter, with IBM placing $6B of pension liabilities with Prudential. Pension risk transfer activity is expected to remain strong throughout the remainder of the year, resulting in a strong 2024. Although the high volume of cases has led to some insurers declining otherwise attractive cases due to capacity constraints, many insurers continue to bid competitively. One new insurer has begun bidding on cases in 2024, with additional insurers contemplating entering the pension risk transfer market. This increase in competition would expand capacity and encourage attractive pricing for plan sponsors aiming to de-risk their pension plans in the future.
In addition, it was announced that the industry’s first multiemployer plan transaction was completed in the third quarter. Approximately 8,700 retirees from The Sound Retirement Trust were transferred to Prudential. Agilis was proud to advise The Sound Retirement Trust Board of Trustees in this transaction. For more information, please see the linked press release.
For more information on pension risk transfer timing, check out the short video on our website.
[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.