Pension risk transfer premiums rise for third month in a row − Milliman study

U.S. pension risk transfer premiums among the most competitive bidding processes increased for a third month in a row in November to remain above 100%, a study by actuarial and consulting firm Milliman showed.

According to a report of the Milliman Pension Buyout index, the estimated average premium among the most competitive rates was 101% as of Nov. 30, up from 100.8% as of Oct. 31. The estimated average premium among those most competitive bidding processes had hit above 100% at the end of September when it was 100.1%, a considerable increase from the estimated average premium of 96.9% as of Aug. 31.

Also during November, the average annuity purchase cost across all insurers increased to 103.6% from 102.9% as of Oct. 31.

"The competitive retiree buyout cost remains above 100% and continues to climb, which translates to the same potential factors we have seen the last two months 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 Tuesday. "With PRT sales hitting a record-breaking $26 billion in the third quarter, insurers have become more selective about which opportunities they pursue, which is likely to create a less competitive market for retiree buyouts as we end the year."

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.