Companies are Offloading Pension Plans to Insurers at Record Pace

Introduction

Companies in both the United States and the United Kingdom are rapidly transferring their pension plans to insurance companies, benefiting from higher interest rates. This transfer of pension liabilities is known as a block annuity, where companies shift their retirement obligations to an insurer in exchange for a premium. In this article, we will explore the increasing trend of companies offloading their pension plans, the reasons behind it, and the impact it has on the industry.

The Shift to Insurance Companies

In the first half of 2023, $22 billion of US corporate pension liabilities were redirected to insurance companies. In the UK, an estimated £20 billion has been publicly announced in pension plan transfers. These figures represent record-breaking transfers for the first half of the year, highlighting the growing popularity of offloading pension plans to insurers.

One of the key drivers behind this trend is the higher interest rates that have significantly improved solvency levels for workplace pension schemes. As a result, more companies are considering block annuity arrangements as a viable option to reduce their pension liabilities. This increased demand has prompted insurers to prepare for the influx of transactions, indicating that the market has reached an inflection point.

Success Stories

One notable example of this trend is the UK industry’s largest transaction to date. Insurance company RSA, a unit of Canada’s Intact, announced that it had agreed to offload £6.5 billion of its pension liabilities to the Pension Insurance Corporation. Such deals demonstrate the scale and impact of transferring pension plans to insurers.

The outlook for the UK market is promising, with L&G predicting that the remainder of 2023 and beyond will see even more significant transfers. The combined total for the first half of the year, including unannounced deals, is estimated to reach £25 billion, approaching the £28 billion negotiated in all of 2022. However, it’s worth noting that the shrinking capacity in the UK market may lead insurers to prioritize cases that offer the best chance of securing a transaction, potentially making it challenging to price every deal.

US Transactions and Future Outlook

In the US, the volume of transactions is driven by deals worth over $1 billion. L&G reported four such transactions in the first half of 2023, with AT&T leading the way by offloading $8 billion of its pension obligations to US insurer Athene. The insurer expects a similar number of large transactions to close in the second half of the year, surpassing last year’s total deal value of $52 billion.

Regulators have expressed concerns about the pace of acquisitions and potential risks associated with some reinsurance deals. The Bank of England’s Prudential Regulatory Authority, responsible for overseeing insurance companies, has called for moderation in striking deals that fall outside the insurers’ core competencies.

Unique Insights and Perspectives

While the trend of offloading pension plans to insurers is gaining momentum, there are several key factors and practical examples to consider:

1. The Impact of Higher Interest Rates – The availability of competitive interest rates makes block annuity arrangements an attractive option for companies looking to reduce their pension liabilities.
2. Insurer Capacity and Pricing Challenges – As the number of companies seeking to offload their pension plans increases, insurers may face capacity constraints and prioritize cases that offer the best chance of securing a transaction. This could lead to challenges in pricing every deal.
3. Regulatory Concerns – Regulators are closely monitoring the pace of acquisitions and the potential risks associated with reinsurance deals. Insurance companies must exercise moderation and not exceed their core competencies.
4. Pension Transfer Success Stories – The UK industry’s largest transaction, involving RSA offloading £6.5 billion of pension liabilities, serves as a testament to the scale and impact of transferring pension plans to insurers.
5. Outlook for the Market – With a record-breaking first-half total and promising forecasts for the remainder of 2023, the market for offloading pension plans to insurers is expected to continue growing.

The Bottom Line

The trend of offloading pension plans to insurers is gathering pace, with record-breaking transfers in both the US and UK. Higher interest rates have contributed to this trend, making block annuity arrangements more accessible to companies. However, challenges such as insurer capacity and regulatory concerns must be carefully managed to ensure the long-term sustainability of this market.

Summary

Companies on both sides of the Atlantic are offloading their pension plans to insurers at an unprecedented rate. In the US, $22 billion of corporate pension liabilities were redirected to insurers in the first half of 2023, while the UK saw over £20 billion publicly announced in pension plan transfers. Higher interest rates have significantly improved solvency levels for workplace pension schemes, leading more companies to consider block annuity arrangements to reduce their pension liabilities. Success stories like RSA offloading £6.5 billion of pension liabilities to the Pension Insurance Corporation demonstrate the scale and impact of these transfers. Looking ahead, the market is expected to continue growing, but challenges such as insurer capacity and regulatory concerns must be carefully managed.

—————————————————-

Article	Link
UK Artful Impressions	Premiere Etsy Store
Sponsored Content	View
90’s Rock Band Review	View
Ted Lasso’s MacBook Guide	View
Nature’s Secret to More Energy	View
Ancient Recipe for Weight Loss	View
MacBook Air i3 vs i5	View
You Need a VPN in 2023 – Liberty Shield	View

—————————————————-