Sale of Pension Risk Buyout Products Up in 2013

Group pension buyouts experienced strong sales during 2013, says a new survey.

Sales of pension risk buyout products topped $3.8 billion in 2013, according to a LIMRA Secure Retirement Institute (SRI) survey. This represents the best sales year for these products since 1999, with the exception of 2012 when General Motors and Verizon transferred their group pension obligations to Prudential, causing sales to spike to $35.9 billion for the year.

According to the survey, sales in 2012 were seen as an anomaly because those two large companies were responsible for nearly all the sales that year. In a year-to-year comparison, 2013 sales represent a decrease of 88%. However, if the GM and Verizon deals are excluded, say the survey authors, sales in 2013 increased compared to 2012.

An improved interest rate environment in 2013 enabled more companies to make gains on full funding of their pension plans, a prerequisite to consider a pension risk transfer, according to survey findings. The survey authors cite data from Mercer Investment Consulting, which found that by the fourth quarter of 2013, companies in the S&P 1500 with defined benefit (DB) pension plans had improved their funding levels to 91% of their obligations.

While a DB pension plan adds equity to a company, the unpredictability of its assets, liabilities and funding ratio can add to the volatility of the company’s balance sheet, say the survey authors. In addition, internal administrative costs and Pension Benefit Guaranty Corporation premiums, which are predicted to double or even triple in the coming years, make purchasing an annuity and offloading the plan to an insurer a more attractive option.

Survey findings also show that more sellers are entering the market. LIMRA SRI currently tracks ten companies in its group annuity risk transfer survey, with two companies joining the survey last year. If interest rates remain favorable, LIMRA SRI analysts anticipate that 2014 sales will eclipse 2013 and continue a positive growth trend for several years to come.

More information about the survey can be obtained by emailing Catherine Theroux at