The BCG Pension Insider

February 2021 – Volume 112, Edition 1

Major Insurers Flock to U.S. Pension Risk Transfer Market

Fidelity & Guaranty, Midland National and Nationwide are Latest Entrants

Prior to 2014, there were eight insurers in the U.S. pension risk transfer (PRT) market that were continuously active for many decades, with the longest tenured insurer being MetLife who entered the PRT business in 1921. That’s right -- 100 years ago! Following MetLife, while other companies entered and exited the market, seven insurers joined and remained active in the PRT market at different points over the ensuing 60+ years. The year of market entry for these “historical PRT insurers” is as follows:

Historical PRT Insurers Market Entry
MetLife 1921
Prudential 1928
Pacific Life 1941
Principal 1942
AIG 1977
New York Life 1980
MassMutual 1982
Mutual of Omaha 1985

With Fidelity & Guaranty’s recent announcement that they are entering the U.S. PRT market, and Midland National and Nationwide having entered the market in 2020, there are now 19 insurers active in the market with others likely to join soon. Prior to these latest market entrants, there were eight insurers that had entered the PRT market in prior recent years, bringing the total number of “new entrant PRT insurers” to 11, as follows:

New Entrant PRT Insurers Market Entry
OneAmerica 2014
Western-Southern 2014
Legal & General 2015
Securian Financial 2015
Athene 2017
CUNA Mutual 2017
Great American 2017
Mutual of America 2017
Midland National 2020
Nationwide 2020
Fidelity & Guaranty 2021

As we have experienced (and expect to continue), the growing number of companies in the PRT market has increased competition resulting in reduced prices and settlement costs near (and often below!) the accounting cost of the liabilities. Many of the new firms will bring different perspectives and techniques to pricing PRT business. Some may prefer retiree-only placements, while others are more competitive when deferred participants are involved. Some may bid more competitively on blue collar or union groups, whereas for others, plans featuring higher benefits are the sweet spot. But overall, the different perspectives these companies bring to the table will allow for an experienced annuity placement consultant to better manage the placement process and achieve a lower price. In addition, the BCG bid auction process will be more robust with a greater number of firms competing for the same business, again, resulting in better outcomes.

The demand for PRT is very strong as we enter 2021 and we expect that to continue for many years. Despite over 3,000 annuity buyout transactions and $180 billion in annuity purchase volume since 2012, only about 5% of U.S. pension liabilities have been transferred to life insurers. For this reason, and the fact that managing pension plan risk (e.g., investment and longevity risk) is a core strength for PRT insurers; we expect capacity from existing and new insurers, as well as reinsurers, to continue to grow to meet the market demand that comes from pension plan sponsors seeking to reduce their company’s pension cost and risk.

* This article was updated in October 2021


Sample Interest Rates for a Pension Annuity Buyout
(Assumes no lump sums, disability, or unusual provisions)

Retirees (duration of 7) – 1.54%
Term Vesteds (duration of 10) – 1.78%
Actives (duration of 15) – 1.89%

Annuity Purchase Rates as of February 1, 2021