MetLife, Inc.

Headquarters	New York, NY
Year Founded	1868
Annual Benefit Payments	$4.7 billion
Number of Pension Annuitants	Almost 900,000
Website	www.metlife.com

^* As of March 31, 2023

Elizabeth Walsh, CFA

VP, Head of US Pensions

Elizabeth Walsh is head of MetLife’s US Pensions business, providing risk management solutions to corporate defined benefit pension plans. The division is part of MetLife’s Retirement & Income Solutions Group, the company’s institutional retirement business, which historically has been responsible for generating over twenty percent of MetLife’s operating earnings. Walsh joined MetLife in 2020 and has over 20 years of experience in the pension risk transfer market.

Elizabeth Walsh can be contacted at elizabeth.walsh@metlife.com

BCG: Can you tell us about MetLife’s position in today’s U.S. pension risk transfer market and how it has evolved?

Walsh: MetLife is a leading pension risk transfer (PRT) provider in the U.S., managing annual benefit payments of approximately $4.7 billion for almost 900,000 pension annuitants. Our focus has always been on delivering for these annuitants while finding new ways to help our plan sponsor customers provide their retirees and beneficiaries guaranteed retirement income. Its been more than one hundred years since MetLife paved the way for the PRT market by developing a group annuity contract to fund a defined benefit pension plan and our company continues to focus on the future. Our financial strength and decades of proven investment expertise enables MetLife to now focus on large, custom retiree transactions that allow us to provide differentiated solutions for the large plan market. Over the last five years, MetLife has assumed $32B of liabilities, and notably last year was selected by IBM as part of their $16B pension group annuity buy-out transaction, the second largest PRT deal ever by premium in the United States. In 2022, MetLife ranked #1 in PRT sales in a survey of 21 participating insurance companies, according to LIMRA.

BCG: What are top trends in the U.S. PRT market today? How are those trends different from 10 years ago and are the current trends here to stay?

Walsh: If we look back just ten years ago, pension group annuity buy-out transactions were overly complicated and took a long time. As the PRT market continues to evolve, the top trends in the market today center around transaction approach and deal structure.

Many plan sponsors have chosen a phased approach to winding down their plans, sometimes completing five or six transactions over as many years. In fact, MetLife’s 2023 PRT Poll (which included plan sponsors with de-risking goals) found that more than half the plan sponsors surveyed plan to transfer risk through a series of annuity buy-out transactions (55%), versus a single annuity buy-out transaction (45%). In practice, we have seen many plan sponsors start with retirees with small and simple benefits, removing a lot of headcount where the focus was PBGC and administrative per participant cost reduction. As the phased approach continues, plan sponsors are left with participants with larger benefits and more complex plan provisions and the focus is now shifting towards more meaningful risk transfer.

One of the biggest changes we’ve seen in the large plan PRT market is how insurers are choosing to participate in the market. While split deals aren’t new, some insurers are presenting quotes with a chosen partner. Split deals allow insurers to participate in deals in which they might not otherwise be able to participate due to size or benefits administration capabilities. For large and complex transactions, splitting among insurance carriers should support more large market PRT transactions being completed.

Lastly, some PRT insurers have announced the creation of reinsurance companies, choosing to reinsure blocks of business to the new company. Reinsurance allows for capital efficiency, helping to fuel future growth. Other insurers have created new investment vehicles known as “sidecars” that are reinsurance vehicles that allow access to capital from third-party investors.

BCG: Given the PRT market continues to see record volume, can you talk about insurer capacity and how that may be impacted?

Walsh: PRT market growth has led to many new insurers entering the market who are providing capacity to meet the increased demand. In 2022 alone, there were three new PRT insurers in the market and today there are more than 20 insurers in the PRT market. Less than ten years ago, there were under ten insurers in this space.

As the market volumes continues to increase, we expect to continue seeing new entrants, as well as new deal structures, including more split deals which all serve to support increased industry capacity. Reinsurance strategies, including the use of sidecars, will also add capacity and support continued competitive pricing.

BCG: Does transaction timing affect capacity and pricing?

Walsh: Historically, most PRT transactions have taken place in the second half of the year. However, in recent years we have seen more deals coming to market earlier in the year. The first half of 2023 was the largest first half ever recorded with $22B in sales. There is a potential advantage to transacting earlier in the year before insurers have used up their capital budget. This means there is the possibility for more insurers bidding for the deal, which improves the chances of receiving the most competitive price possible.

This doesn’t mean, however, that competitively priced deals aren’t occurring in the second half of the year. Insurers may not have been that successful earlier in the year and now have incentive to meet their year-end goals. It could also be the case that the transactions earlier in the year did not meet the insurer’s criteria. The PRT market is fragmented because providers are concentrating on certain types of deals. Some insurers concentrate on the larger end of the retiree only market while other insurers may prefer deals with a mix of deferred and retiree benefits, while yet others focus on smaller plans. It’s hard to predict the timing of preferred transactions so participation is not always dependent on the time of year.

It’s important to work closely with your consultant to understand the current PRT insurer landscape and the best timing for a PRT annuity transaction.

BCG: Do you foresee greater use of reinsurance by PRT direct writers? If yes, how and why?

Walsh: Yes, I think one of the bigger changes we’ve seen in market is an increased use of reinsurance. Reinsurance can provide capital relief for providers, helping to increase overall capacity. Many insurers are opportunistically reviewing reinsurance strategies that will allow them to support future growth.

BCG: What are some of the things that plan sponsors can do to ensure they get the maximum number of PRT insurers bidding on their transaction?

Walsh: There are steps a plan sponsor can take to ensure future PRT transaction success. The initial preparation for a transaction is one of the most important steps in the transaction process. This phase should include data preparation and ensuring all the data elements required by insurers for both pricing and administration are up-to-date. Plan sponsors should also be clear on the type of deal structure they are contemplating (e.g., full buy-out, partial buy-out, buy-in) and if assets-in-kind will be used to pay some or all of the premium. In addition, as deals increase in size, mortality experience data may be required. Being aware of what’s required and having the required information available will allow for greater insurer participation. It’s important for plan sponsors to work closely with their consultants to gain insight into overall market activity.

BCG: In closing, interest rates and DB plan funded statuses are at decade+ highs. Are you expecting more jumbo-sized (i.e., $1 billion and up) plan terminations?

Walsh: The current environment is conducive to PRT as the interest rate environment has had a positive impact on DB plans, helping to improve their funded status. Once a plan is in a well-funded position, there may not be an economic incentive for plan sponsors to continue to keep the plan running. Aside from paying lump sums to certain participants, transferring benefit obligations to an insurance company is the only way to fully remove risks associated with those liabilities, specifically longevity risk and interest rate risk.

While much of the plan termination activity to date has been at the smaller end of the market, we are hearing from consultants and plan sponsors about an increase in terminations for larger plans. With this, we are also seeing a greater interest in buy-in transactions to lock in pricing and capacity ahead of the termination process. While the potential for larger plan terminations is increasing, there are currently only a handful of PRT insurers who can competitively price and administer a jumbo plan termination with a large number of deferred participants. This could ultimately impact the amount of jumbo plan terminations that can come to market.