The US pension risk transfer market has had, to put it mildly, a sluggish first half of the year, at least in terms of annual premium. Just $4bn of buy-in and buy-out sales in Q1 were followed by only $3bn in Q2, declines of 47% and 27%, respectively.
But while overall premium volume remained soft, transaction activity tells a different story. LIMRA says that the market recorded 180 contracts during the second quarter, up 24% year over year: In particular, transactions below $50m remained active, helping sustain contract growth despite the absence of larger, market-moving deals.
“While first-half results have been shaped by the absence of larger transactions, the fundamentals of this market remain firmly in place,” said Keith Golembiewski, Head of LIMRA Annuity Research.
“Rising contract counts and broad carrier participation tell us sponsor demand is intact. What we are seeing reflects timing and deal sequencing, and a rebuilding pipeline points to a stronger second half of the year.”
Notably, LIMRA data shows that not a single transaction above $250m closed during the second quarter. This absence of jumbo and mid-market deals, which historically account for the lion’s share of quarterly premium volume (and therefore influence the figures significantly), explains why total dollar figures looked so sparse despite healthy contract counts. The disparity reflects a shift in deal size mix rather than waning demand, as multi-billion-dollar plan sponsors hit the pause button.
But the ‘rebuilding pipeline’ to which Golembiewski refers would seem to be materialising already. Banner Life family of companies’ Q3 PRT monitor projects third-quarter activity to reach nearly $7bn, which would roughly match the combined volume of Q1 and Q2.
Something that used to be a more significant consideration for plan sponsors than it is these days – and that helped fuel year-end activity historically – is the Pension Benefit Guaranty Corporation (PBGC) premiums. The rates for 2027 were announced in mid-October, with the single-employer flat rate rising by $5, in line with the past few years.
That means more cost for the plan sponsor. Higher interest rates in recent years, however, have left most plans near record funding levels and as a result, PBGC cost mitigation, whilst important, is no longer the frantic transaction driver it was in the 2010s.
“While PBGC premiums are part of the operational costs a sponsor has to face, and those rising costs can factor into appetite for PRT, it’s unlikely a single-year increase would be a catalyst on its own,” said Alex Gagnon, Vice President and Head of Distribution at Banner Life family of companies’ retirement business.
“Plans are generally better funded and can better support some of these costs, but they are costs nevertheless.”
While PBGC costs may carry less influence in the market nowadays, the projected increase in activity in Q4 betrays a quirk of the US market.
Insurer capacity and pricing are generally acknowledged to be more favorable to plan sponsors earlier in the year. Despite this, governance schedules largely dictate when a deal can be signed, which can ultimately impact which carrier a plan sponsor partners with on a PRT solution.
“Insurer capacity has two dimensions: capital and human resources. Capital appetite may decline as insurers meet annual business targets towards the end of the year, while staffing for pricing and onboarding can limit insurer participation at any time of year. Plan sponsors may consider market timing, but their own schedules—such as board meetings and annual reporting—ultimately drive transaction timing,” said Gagnon.
“There is enough capacity in the market for annual volumes, but when it gets concentrated in a 2–3-month period, demand may exceed capacity, which can lead some insurers to be more selective about what transactions they can participate in. Sponsors may find themselves with less participation than they would have expected earlier in the year.”
Yet despite the genuine risk of facing tighter insurer capacity and less competitive pricing late in the year, this Q4 seasonal surge remains a deeply entrenched feature of the US market. The reality is that defined benefit plan management follows a strict corporate calendar. Many corporate treasurers and pension committees spend the first half of the year reviewing annual actuarial valuations, aligning board approvals, and refining their liability risk strategies, so by the time a sponsor is ready to enter the market, it’s already summertime (at least).
“We saw both transaction count and size increase in Q3 vs. H1. While transaction size does not really have much seasonality historically, transaction activity does tend to increase in Q3 and accelerate further into Q4,” he said.
“And an increase in activity in H2 is a normal pattern for the US PRT market, and we have seen it consistently over the past 10 years. Sponsors typically spend the early part of the year setting their pension de-risking strategy and those who decide to execute a PRT transaction often aim to complete it before year-end.”
