The BCG Pension Insider
March 2024 – Volume 149, Edition 1
Pension Risk Transfer Annuity Placement Pricing Remains Historically Attractive
BCG completed a total of 79 annuity placements in 2023, 55 plan terminations and 24 retiree annuity lift-outs totaling over $1.3 billion in annuity volume. The average selected annuity bid price / accounting PBO value was 101.9% for the 55 plan terminations and 99.8% for the 24 retiree annuity lift-outs.
BCG 2023 Annuity Placement Transactions (n=79)*
Selected Annuity Bid Price / Accounting PBO Value¹
* BCG completed 85 annuity placements in 2023. Four cases had multiple plans where one insurer was chosen. These cases were combined, resulting in 80 annuity placements for purposes of this analysis. Another case was a liftout that included retirees + deferreds (i.e., not retiree only) so this case was also excluded from the analysis resulting in 79 annuity placements.
Key Factors Currently Contributing to Continued Attractive Annuity Pricing
- Fourteen insurers have entered the PRT market since 2014, bringing the total number of insurance companies active in the PRT market to 21. The new entrants are not all focused on one part of the market (see item 2 below). This has resulted in increased competition to win deals.
Example: Brookfield Reinsurance, Reinsurance Group of America and KKR are latest entrants via the following PRT underwriting entities: American National Insurance Company, RGA Reinsurance Company and Commonwealth Annuity and Life Insurance Company. - Increasing insurer focus and commitment to engaging in transactions in a certain target market and/or with a specific transaction profile.
Example: Certain insurers may prefer mixed collar, plan terminations under $100M while other insurers prefer blue collar, retiree annuity lift-outs over $100M. - Aging blocks of PRT business sold in prior years which run-off and create additional pressure to replace recurring future PRT business profitability with new sales.
Example: A less seasoned PRT block may run off at 3-4% per year, while a more seasoned PRT block may run off at 6-8% per year. - PRT liabilities are long term and stable. This makes them very attractive to investment managers who are able to leverage various and differentiated insurer investment capabilities without having much concern that the liabilities that are backed by the investments are volatile.
Examples of specific investment capabilities that may vary across PRT insurers: investment grade public, high yield public, private corporate credit, structured credit, commercial mortgages, real estate and private equity.
Plan Elements that Most Influence Annuity Pricing
The competitiveness of annuity pricing relative to the accounting PBO value relies on a number of factors. Perhaps the most critical would be the complexity of the plan. Features such as cost of living adjustments, cash balance accounts, or lump sum optional forms of payment can meaningfully add to the cost of annuities. The state in which the contract is issued (generally the location of the plan sponsor headquarters) is another factor to consider, as a few states/locations (notably New York & Puerto Rico) have far fewer insurance carriers willing to participate, which often leads to higher pricing. The overall size of the annuity purchase is also critical, as most insurers will limit the minimum and/or maximum placement size that they will consider. Finally, timing of the placement plays a key role. Insurers will be unable to bid if not provided sufficient time to prepare their quotes. And some insurers will be unable to quote when there are (too) many opportunities in the market, as is often the case during the final 3-4 months of the year. Working with consultants that understand the timing capacity of insurers and can inform you of what to expect given these other factors should help to achieve the best possible price and experience when purchasing annuities.
Plan Sponsor Action Items
It is important for plan sponsors to engage experienced PRT consultants who specialize in the annuity placement process and have seasoned staff with time tested processes as they can make a significant difference when it comes to achieving desired results. This “experience advantage” can be relied on by both plan sponsors and insurers to efficiently manage the PRT bid process. Furthermore, insurers are more likely to agree to bid on cases brought to them by a highly experienced PRT consultant. Plan sponsor action items include:
- Engage an unbiased and experienced pension risk advisor to support strategy setting and formulation of pension de-risking objectives.
- Ask annuity placement specialist candidates about their PRT market innovation achievements.
- Prioritize cleaning plan data, including thorough death audits and address searches, and finalizing all accrued benefits.
- Gather all the information needed to assess pension risk transfer, including beneficiary information and nine-digit zip codes when possible.²
- Take advantage of continued attractive annuity pricing while it lasts.
The Experience Advantage – A PRT Insurer Testimonial³
BCG consistently provides thorough and well-organized Bid Specifications, as well as clean and complete data for their transactions. They are extremely knowledgeable with regards to the provisions to ensure that all needed data elements are provided to Insurers up front. BCG routinely evaluates any Insurer questions and incorporates responses into their future Bid Specifications for all plans. They also limit the number of data updates provided to Insurers, which is a testament to the respect BCG shows for everyone’s time. BCG treats Insurers like partners with regards to responsiveness and anticipating their needs for Pricing and Administration which makes the entire process from Pricing to Transition smooth. For all of these reasons and more, the confidence BCG provides Insurers with regards to provisions and superior data integrity allows Insurers to regard BCG as an exceptional partner and provide more competitive pricing than they would otherwise, as well as prioritize bids with BCG over other providers during times of constrained capacity.
Actuary – Director of Annuity Pricing
PRT Insurer
How BCG Can Help
BCG provides comprehensive implementation services for lump sum programs, annuity placements and full plan terminations. BCG also provides fulfillment services and acts as an Independent Expert in regards to DOL IB 95-1. BCG is one of the most experienced and active annuity placement specialists in the United States. Annuity placement transaction premium volume was $7.2 billion across 522 annuity placements (11% U.S. PRT market share by number of deals) for the ten-year period ending December 31, 2023. This included 85 completed annuity placement transactions in 2023. Our annuity placement process is designed to drive the lowest price in the annuity market. 100% of firm revenue comes from pension risk consulting, comprehensive implementation support and related services.
Contact Us
Steve Keating, Managing Director
BCG Pension Risk Consultants | BCG Penbridge
T: 203-955-1566
E: skeating@bcgpension.com
LinkedIn
1 BCG has estimated the accounting liability for each annuitized group based upon an unbiased yield curve as of the date of annuity placement, and the blue, white, or ‘total dataset’ version of the Pri-2012 mortality table (as appropriate to the population) projected by scale MP-2021.
2 There continues to be a push by insurers to secure nine-digit zip codes. This results in more accurate annuity pricing from the insurer standpoint which reduces the potential for premium adjustments post sale.
3 This testimonial was provided to BCG by a PRT insurance company in November 2023.
ANNUITY PURCHASE RATES
Sample Interest Rates for a Pension Annuity Buyout
(Assumes no lump sums, disability, or unusual provisions)
Retirees (duration of 7) – 4.90%
Term Vesteds (duration of 10) – 4.90%
Actives (duration of 15) – 4.76%
Annuity Purchase Rates as of March 1, 2024