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Pension risk transfer market remained healthy for US insurers in 2019

U.S. companies disclosed that they transferred $12.8 billion in pension obligations to domestic life insurers in 2019, according to a review of public documents by S&P Global Market Intelligence.

Such transactions occur when a company agrees, usually by purchasing a group annuity, to shift its obligations to pay future pension benefits to an insurance company. The insurer then becomes responsible for making those future payments to current and/or former employees of the company.

A life insurance industry research group, LIMRA, reported single-premium pension buyout deals of almost $28.0 billion in 2019, about $1.4 billion more than the previous year. It was the highest yearly total since 2012, when Verizon Communications Inc. and General Motors Co. agreed to transfer pension obligations of approximately $7.5 billion and $26.0 billion, respectively, to Prudential Financial Inc.

The $12.8 billion figure for full year 2019 presented in this article was derived from a best-efforts analysis and excludes several longevity reinsurance transactions with U.K. insurers. U.K. pension schemes and annuity writers use longevity reinsurance to hedge against the risk of annuitants living longer than expected.

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Athene Holding Ltd. said it completed nearly $6.0 billion in total pension risk transfer transactions in 2019, with approximately $800 million from a longevity reinsurance deal with a U.K. insurer. This was the first such deal for the Bermuda-based issuer, but CEO and Chairman Jim Belardi is enthusiastic about the company's growth prospects in the U.K. market. Since 2017, the year Athene entered the PRT market, the insurer has closed 16 transactions totaling roughly $11.0 billion.

Prudential Financial also completed reinsurance agreements within the U.K. risk transfer market. The insurer disclosed it completed at least $8.6 billion in longevity reinsurance contracts in 2019, of which $6.0 billion was with Rothesay Life PLC. In addition, Baxter International Inc. agreed to transfer 17,200 participants worth approximately $2.4 billion in pension obligations to Prudential in October.

In December 2019, Lockheed Martin Corp. reported that it completed another PRT transaction when it sent approximately 20,000 U.S. retirees and beneficiaries to an insurance company. The deal transferred $1.9 billion of obligations to Metropolitan Tower Life Insurance Co., a subsidiary of MetLife Inc. In 2018, Lockheed transferred a total of $2.6 billion pension benefits to two insurers; Prudential received $1.8 billion while Athene received the remaining $800 million.