Pension risk transfers (PRT) hit record levels in the second quarter of 2023, and have been high all year. Some industry analysts suggest what may be behind that heat wave. 
Annuities and Funding Levels. Annuity purchase interest rates, as well as improved pension plan funded status, help explain the significant rise in PRTs, says October Three. Those factors “are driving plan sponsors to settle all or a portion of their pension liability,” it says in a recent report.
Insurers. October Three notes that insurance companies have reported higher annuity inquiries in 2023. “This year, insurers have experienced a consistent rush,” they add. In addition, Aon reports that the number of PRT market insurers has grown in 2023, and that increased competition among them resulted in improved transaction pricing and new options—and as a result, plan sponsors have sought PRTs.
Lower Plan Costs. Cost savings are another explanation October Three cites for higher PRTs, since they can be attractive to an employer. They observe that PRTs transfer liability and reduce administrative costs for a plan since PRTs reduce the number of participants. Further, PRTs reduce plan liabilities and also result in lower premium payments to the Pension Benefit Guaranty Corporation.
Crystal Ball
October Three suggests that there is more to come. “This year is on track to be a record year” for PRTs, they say, as funding levels continue to improve and annuity purchase costs become more attractive. And they add that insurers expect that they will continue to receive a high number of annuity inquiries for the rest of the year.
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