Pension risk transfer premiums rose slightly in March due to discount rates rising compared to annuity purchase rates, according to a study from Milliman.
Discount rates rose 80 basis points during March, while annuity purchase rates rose 71 basis points, Milliman's latest pension buyout index study said.
The difference marks an increase in the relative cost of annuities to 105.7% of a plan's liabilities as of March 31, compared to 105.2% of liabilities a month earlier.
Mary Leong, a consulting actuary at Milliman and co-author of the study, said in a news release that the significant monthly increase in discount rates is likely the result of COVID-19 pandemic-related market volatility. But because insurer rates matched the movement in discount rates, the average cost estimate for group annuity purchases only rose slightly, she said.
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.