U.S. pension risk transfer premiums among the most competitive bidding processes increased for a second month in a row in October to remain above 100%, a study by Milliman showed.
According to a report of the Milliman Pension Buyout index, the estimated average premium among the most competitive rates was 100.8% as of Oct. 31, up from 100.1% as of Sept. 30. During September, the estimated average premium had risen from 96.9% as of Aug. 31.
However, during October the average annuity purchase cost across all insurers dropped to 102.9% from 103.1% as of Sept. 30.
"The competitive retiree buyout cost remains above 100%, which translates to the same potential factors we saw last month in terms of interest rate risk and capacity," said Mary Leong, a principal and consulting actuary with Milliman and co-author of the study, in a news release on Thursday. "After the Fed hiked interest rates another 75 basis points on November 2 — the sixth increase for 2022 — we'll see if this trend continues or if annuity purchase rates catch up with the increase we've seen in average accounting discount rates."
Average accounting discount rates increased by 31 basis points during October, while annuity purchase rates increased by 22 basis points for the most competitive rates, according to the report by the actuarial and consulting firm.
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.
