In 2022, the total volume was $48.3 billion, driven primarily by corporate pension funds' improving funding ratios, which have enabled many to pull the trigger on purchases of group annuity contracts from insurance companies to transfer some or all of their pension plan liabilities. Many corporations have expressed interest in pension buyout transactions, and rising interest rates have lowered liabilities, so even during a time of volatile investment returns leading to asset losses, ratios have improved.
While the record-setting year of 2022 was notable, a full third of that volume came from a single transaction. In September of that year, International Business Machines Corp., Armonk, N.Y., purchased group annuity contracts from Prudential Insurance Co. of America and Metropolitan Life Insurance Co. to transfer a total of $16 billion in U.S. defined benefit plan liabilities.
It was the second-largest such transaction in U.S. PRT history, behind only Detroit-based General Motors Co.'s 2012 purchase of a contract from Prudential to transfer $29 billion in pension plan liabilities.
"Last year, we had the $16 billion deal. You know that tipped the scale a bit in terms of making that a record year," said Matt McDaniel, U.S. pension strategy and solutions leader at Mercer.
"I suspect the dollar premium volume will be down a little year-over-year, but we'll probably be somewhere in the 40s (billion) is our best guess," McDaniel said.
During the first half of 2023, the largest deal (and third largest all time) took place in May when Dallas-based AT&T Inc. purchased group annuity contracts from two Athene Holding subsidiaries to transfer $8.1 billion in U.S. pension plan liabilities.
In August, Athene Annuity & Life Co. and Athene Annuity & Life Assurance Co. of New York took on the responsibility for paying benefits to about 96,000 AT&T participants and beneficiaries.
It represented just less than 20% of the company's total U.S. pension plan liabilities.
As a result, the transaction contributed to a record volume for the first half of any calendar year, well above the $15 billion in volume completed in the first half of 2022.
It may represent the market maturing because historically the majority of transactions have been completed in the second halves of calendar years.
Ari Jacobs, senior partner and global retirement solutions leader at Aon, said 2023 will likely be more balanced in terms of transactions being spread out for the year.
"We continue to see many insurers in this market, so the market remains a market that the insurance industry and capital is focused on," said Jacobs. "I see no shift in that trend whatsoever."
He also said the increase in the number of insurers focused on specific kinds of deal volume goals has also contributed to the market maturing, with corporate plan sponsors becoming more familiar with their options.
When General Motors completed its historic transaction in 2012, there were six insurers serving the market, and now there are over 20 insurers involved in PRT transactions.