Updated with correction
Pension risk transfer premiums dropped significantly in May due to a continued drop in both discount rates and annuity purchase rates, a Milliman study said.
Discount rates dropped 27 basis points during May, while annuity purchase rates fell 10 basis points, said Milliman's latest pension buyout index study.
The difference marks a slight decrease in the relative cost of annuities to 103.9% of a plan's liabilities as of May 31, compared with 105.5% of liabilities a month earlier.
"We've seen a continuous drop in rates in May; however, the drop in annuity rates isn't as steep as the decline in discount rates," says Mary Leong, a consulting actuary with Milliman and co-author of the study, in a news release. "We may see an uptick in (pension risk transfer) deals for the month given the improvement in retiree buyout costs."
The Milliman Pension Buyout index uses the FTSE Above Median AA Curve and insurers' composite interest rates to estimate the average cost of PRT transactions.