The high transaction volume in the latest quarter was fueled by strong equity returns and rising interest rates, the report said. Both are responsible for rising funding ratios that allow corporate pension plans to use plan assets to pay premiums to insurance companies for these buyout transactions.
During the third quarter, retiree liftouts (transferring just a portion of participants to the insurer) outpaced terminations, accounting for nearly 90% of closed deals, the report says. That was primarily because of two jumbo transactions that were both retiree liftouts, equaling a little over $10 billion of the total volume for the third quarter.
Those third-quarter transactions were HP Inc., Palo Alto, Calif., purchasing a group annuity contract from Prudential Insurance Co. of America to transfer about $5.2 billion in U.S. pension plan liabilities, and Bethesda, Md.-based Lockheed Martin Corp.'s purchase of a contract from Athene Holding Ltd. to transfer about $4.9 billion in U.S. pension plan liabilities.
"The economy is slowly but surely recovering from the pandemic and as a result, deal volumes and deal sizes should follow suit," said George Palms, president of Legal & General Retirement America, in a news release. "We've seen five jumbo deals of more than $1 billion this year alone, reflecting the fact that plan sponsors are becoming more comfortable with PRT as a tool to manage their pension risk."
Legal & General is projecting between $10 billion and $15 billion in transaction volume for the fourth quarter, which could bring the annual volume to between $35 billion and $40 billion.
The biggest year recorded was 2012, when transaction volume totaled $36 billion.