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Group annuity sales for pension buyouts on the rise

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U.S. group annuity risk transfer sales totaled $14.4 billion in 2015, up 54% from 2014, a LIMRA Secure Retirement Institute sales survey showed.

Single-premium pension plan buyouts totaled $13.6 billion in 2015, up 61% from 2014, and accounted for 94% of total group annuity risk transfer sales in 2015. Buy-ins totaled $7.2 million in 2015, down 95% from 2014.

In the fourth quarter alone, group annuity risk transfer transactions totaled $5.8 billion, down roughly 19% from the fourth quarter of 2014. Buyouts totaled $5.6 billion in the fourth quarter, up 70% from the third quarter.

“In prior years, significant market growth was a result of one or two jumbo deals, like the deal between Prudential and General Motors in 2012,” said Michael Ericson, research analyst for LIMRA Secure Retirement Institute, in a news release. “This year we saw broad growth across the industry and many of the sales came from smaller plans. Companies reported selling more than 300 separate contracts under $100 million.”

Among the buyouts announced in 2015 were Kimberly-Clark Corp., Dallas, which reduced its total liabilities by $2.5 billion with group annuity purchases from Massachusetts Mutual Life Insurance Co. and Prudential; and Philips Electronics North America Corp., New York, which purchased group annuity contracts from Prudential, American United Life Insurance Co. and Banner Life Insurance Co. to cut pension obligations by about $1.1 billion.

“With PBGC premium increases, market volatility and continued low interest rates, employers are becoming more interested in transferring their pension risk to an insurer … The institute expects this trend to accelerate in the next few years,” Mr. Ericson added.

Meaghan Kilroy writes for Pensions & Investments, a sister publication of Business Insurance.