Estimated average pension risk transfer premiums continued to fall in August to new lows, both overall and among the most competitive bidding processes, a Milliman study showed.
The estimated buyout cost as a percentage of accounting liabilities, or accumulated benefit obligations, was 101.4% as of Aug. 31, down from 101.5% a month earlier, according to the Milliman Pension Buyout index. It was the second straight month overall premiums fell. The estimated cost was 103% as of June 30.
Also, the average of the most competitive annuity purchase rates fell by 1.1 percentage points during August to 96.9% as of Aug. 31 from 98% a month earlier. It was the third month in a row the most competitive rates fell, according to the study. As of May 31, the most competitive rate was 98.6%.
"This continuing decline in the competitive retiree buyout cost — to a new low of less than 97% — comes as IBM transferred $16 billion in pension liabilities. That's the second-largest buyout in U.S. history," said Mary Leong, principal and consulting actuary with the global consulting and actuarial firm and co-author of the study, in a news release Monday. "Combined, these milestones speak to the high level of activity we have seen throughout 2022 and a continuation of de-risking strategies as interest rates climb."
Average accounting discount rates during the month of August increased by 43 basis points from the previous month, while annuity purchase rates increased by 58 basis points for the most competitive rates, according to the study.
The Milliman Pension Buyout index uses the FTSE Above Median AA Curve and insurers' composite interest rates to estimate the average cost of pension risk transfer transactions.