Winners and Losers of the PRT Market Boom

Insurance carriers and asset managers skilled at pension risk transfer are reaping rewards of record transaction levels, while those specializing in DB management may benefit from shifts in focus.

The pension risk transfer market hit record-high levels last year, but the first quarter of 2024 may top those marks amid high interest rates, according to research released Wednesday from Cerulli Associates and signals from PRT providers.

In a report issued Monday by consultancy Cerulli, the firm detailed how the interest rate environment has helped the funding status of many corporate DB plans, making it a positive environment for PRT transactions. This flow through was forecast in a 2Q 2023 Cerulli study, when more than two-thirds of plan sponsors (69%) said they are at least somewhat likely to de-risk over the next 24 months.

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Continued PRT transactions would be good news for asset managers and insurance carriers specializing in the risk transfer space, but may further crimp managers specializing in DB if they don’t expand their capabilities, according to Cerulli.

“Asset managers that can assist with de-risking efforts, including providing advice on glidepaths, are well positioned to capture corporate DB assets,” says Agnes Ugoji, a Cerulli analyst. “As corporate DB plans represent a diminishing opportunity, asset managers should look toward other institutional channels, particularly insurance general accounts and endowment and foundation clients.”

Average corporate pension funding has steadily increased from 98.9% in 2021 to 102.2% in 2022 and 104.4% in Q3 2023, according to Cerulli’s report. Those increases were matched by PRT transaction volume of 444 in 2021, 568 in 2022 and 773 in 2023.

Meanwhile, those in the DB space will likely see funded status either flatline or decrease when the Federal Reserve can finally start bringing rates down, the consultancy noted, which could start to curtail this market. When that comes, asset managers who can adjust to lower rates by way of funding may have opportunity.

“High-yield managers and alternative managers will be adequately equipped to support these clients,” Ugoji says.

Even when rates come down, though, the firm noted that the PRT market still may stay strong in part becuase plan spnosors that didn’t transact amid high rates have made investment changes taking advantage of higher rates. 

Transfers To Continue

Given the improvement in pension funding levels, it makes sense that more funds are de-risking and have a higher demand for fixed income or annuity setups now, says Anthony Woodside, head of multi-sector fixed income and investment strategy at LGIM America.

“When you’re underfunded what you generally see is a higher allocation to risk seeking securities such as equities and things along those lines,” Woodside notes. “The closer you get to being fully funded is when you typically see a more conservative allocation and go toward liability-hedging, which is fixed-income securities.”

Actuarial and investment consulting services firm, Agilis believes the trend will see the PRT market for last quarter topping last year’s record in terms of premium volume, if not amount of transactions.

“We expect that the premium volume for Q1 2024 will be the largest on record [doubling the last high watermark], led by two jumbo transactions for Shell and Verizon that collectively transferred almost $11B in pension liabilities to insurers,” says Michael Clark, chief commercial officer of Agilis.

Clark notes that, while the premium volume of pension buy-outs was actually down last year compared to 2022, the total number of transactions increased by almost 25% year-over-year.

Cerulli’s report also noted that, over the last decade, more insurance carriers have come online to support the expanded PRT market, jumping from 10 in the past to 21 today. The firm believes legacy players have a competitive advantage over newcomers due brand recognition, reputation, and ability to “handle complex plan designs” and “enhanced customer service capabilities.”

On Tuesday, one of those relatively new entrants announced sales growth that shows there is some wealth to go around. F&G Annuities & Life Inc. announced cumulative PRT sales of over $5 billion since it launched the service in June 2021. That channel now covers 100,000 total participants, including beneficiaries, who will get pension payouts from F&G, according to the institutional and retail insurance and annuity provider.

“F&G has developed an efficient and effective approach to how we successfully design, execute and close pension risk transfer transactions alongside our consultant and plan sponsor clients,” Jay Dinunzio, senior vice president of PRT sales and operations at F&G, said in a statement. “Successful PRT transactions require strong intermediary relationship management, competitive product pricing and outstanding post-sale administration conversion execution.”

Risky Business

There are different flavors of PRT, with firms using lump-sum payments, annuity buyouts (transferring the assets to an insurance company) or buy-ins (a group annuity purchase) and longevity swaps. Clark sees most plan sponsors opting for lump sum cash outs or annuity buyouts and buy-ins—both for pension de-risking and full plan terminations.

Cerulli came to the same conclusion, noting that of the four main strategies, 43% of plan sponsors say they would use a combination of lump-sum payments and annuity buyouts in the case of plan termination.

Clark notes there are some headwind items that Agilis is watching in terms of PRT market trends.

One is a report to Congress from the Department of Labor analyzing Interpretive Bulletin 95-1, which outlines the process for pension plan fiduciaries to evaluate insurers when it comes to offering annuities. The report, which was due at the end of 2023, is being closely watched by the industry for changes to how it might impact the current approach to PRTs—with some insurance groups saying it may have a chilling effect on DB risk transfers.

Meanwhile, there have been a spate of lawsuits recently filed against companies that have implemented pension risk transfers via annuity buy-outs alleging a breach of fiduciary duty. The latest was filed April 12, with Schlichter Bogard LLP filing against Alcoa corp. regarding a pension risk transfer conducted with Athene Annuity & Life Co. between 2018 and 2022. Attorney Jerome Schlichter has filed similar suits against AT&T Inc. and Lockheed Martin in the past few months, both accusing Athene of being an “unsafe” insurer.

“Despite these concerns, pricing still looks favorable to plan sponsors and insurer appetite is strong,” Clark says. “With the growth in the market, we expect to see more insurers enter the pension risk transfer market which should increase competition, open up capacity, and drive attractive pricing.”

In addition, he notes, with annuity purchases booming due to higher interest rates, he says Agilis is also seeing interest from public sector pension plans, multiemployer pension plans, and church plans in de-risking, showing perhaps new entrants to the market.

Advisory M&A News – 5/13/24

J.P. Morgan Wealth Advisors Snags $28B Merrill Team; NFP’s Wealthspire to acquire $420M Ohio RIA; Carson Wealth fully acquires partner firm with presence in three East Coast states; and more.

J.P. Morgan Wealth Management Adds $28B Wealth Team

J.P. Morgan Wealth Management has brought over a $28 billion advisory from Ban of America’s Merrill division.

Eric Gray and Lance Polverini have joined J.P. Morgan Wealth Management in Los Angeles as a wealth partner and wealth adviser focused on ultra-high net worth clients and families, according to a J.P. Morgan spokesperson. Gray was with Merrill since 2000 and Polverini had been with them since 2007. Team members Drew Sapede, an investment association, and client associates Michelle Blackmer and Irma Deluna will also make the move.

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“We very much look forward to taking our practice to the next level, leveraging the extraordinary resources and expertise of J.P. Morgan on behalf of our clients,” Gray said in a statement.

The pair will report to David Berger, market leader for the Southwest region and work with Michael Rogers, the Southwest regional director.

“Eric and Lance have a long, proven record of providing exceptional service to their clients,” Phil Sieg, CEO of J.P. Morgan Advisors, said in a statement. “Their decision to join us is further confirmation that J.P. Morgan Wealth Management is the best place for the industry’s top advisors to grow their business and for clients to grow their wealth. We are proud to welcome them.”

Wealthspire Adds $420M RIA In Ohio

Wealthspire Advisors has entered into a definitive agreement to acquire Walden Wealth Partners, a $420 million registered investment adviser based in Beachwood, Ohio.

The deal will expand Wealthspire’s footprint in the Midwest and add assets under administration to $420 million. Walden Wealth founders Karin Maloney Stifler and Sarah Hannibal will join Wealthspire, which has been expanding in part through acquisition recently.

Walden Wealth was founded in 2015 and specializes in financial advisory and investment management services for individuals and families, as well as financial planning and fiduciary consulting for retirement plan sponsors, trustees and charitable entities.

“Partnering with Wealthspire will enable us to continue what we’ve started and expand our ability to support the needs of our clients for generations to come,” Maloney Stifler said in a statement.

MarshBerry advised Walden Wealth Partners on the transaction.

Wealthspire is headquartered in New York and is an NFP company, which itself is owned by Aon. The firm has more than $25.8 billion in AUM.

Carson Wealth Grows in Maryland, Georgia and Tennessee

Carson Wealth, the wealth management division of Carson Group, announced that it has taken a full ownership stake in an advisory spanning three states to expand its footprint on the East Coast.

The Omaha, Nebraska-based registered investment adviser announced the full acquisition of a firm led by Managing Director, Partner and Wealth Advisor Scott Ford that it had previously had a minority stake in. Ford’s firm has offices in Hagerstown, Maryland, Atlanta, Georgia and Johnson City, Tennessee, and manages $840 million in assets. 

“This move helps solidify our commitment to the clients and families we serve, even long after I may no longer be leading the firm,” Ford said in a statement. “Transitioning these locations to be wholly-owned allows us to enhance the way we serve our clients.”

Ford was the first partner to join Carson’s partner network program in 2012, according to the announcement. His group has grown to more than 30 advisers and operations employees.

“Carson’s business model is designed to support the growth and operational needs of financial advisors in a variety of ways,” Burt White, CEO of Carson Group, said in a statement. “But perhaps one of the most powerful aspects is our ability to facilitate smooth succession plans, where an adviser can confidently pass the reins to the next generation while knowing their clients will continue to receive the highest level of care and service.”

Lincoln Financial Group Completes Sale of Wealth Management Business to Osaic

Lincoln Financial Group has finalized the sale of its independent broker-dealer and registered investment advisory firms to Osaic Inc. first announced in December 2023.

With the close of the transaction, 1,450 financial professionals along with Lincoln’s home-office employees supporting the wealth management business will officially join Osaic.

The sale, in turn, provides Lincoln with about $650 million of capital benefit, which the company says will go toward increasing risk-based capital ratio and reducing leverage ratio.

“Lincoln is focused on continuing to execute on our enterprise strategic pillars, leverage our core strengths to grow our individual insurance solutions and workplace solutions businesses, and deliver long-term value for all of our stakeholders,” Ellen Cooper, chairman, president and CEO of Lincoln Financial Group said in a statement. “We look forward to our long-term strategic partnership with Osaic as we continue to provide financial professionals with products and solutions that will help them best serve their clients.”

The divisions joining Osaic were previously Lincoln Financial Advisors Corporation and Lincoln Financial Securities Corporation. Lincoln is retaining all aspects of its Lincoln Financial Distributors unit, which provides wholesale distribution of retail products. It is also keeping its independent agents channel, now part of LFD, and expanding its distribution relationship with Osaic financial professionals.

 

 

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