scissors cutting word RiskRisk transfer options have increased as the aggregate funded statusof corporate pensions has improved since the financial crisis.(Photo: Shutterstock)

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The fourth quarter of 2018 saw continued momentum in the pensionrisk transfer market, as another $10.4 billion in corporate pensionobligations was moved off sponsors' books to insurance companies,according LIMRA Secure Retirement Institute's quarterly U.S. GroupAnnuity Risk Transfer Survey.

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The fourth quarter tends to be the most active for risk transferdeals, according to LIMRA. The $10.4 billion in sales was the thirdmost active quarter on record, behind the $11.1 billion sold in theQ4 2017, and the blockbuster Q4 of 2012, which saw $34.6 billion insales.

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Last year's second quarter saw $8.2 billion in pension transfersales, the largest Q2 activity on record.

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In 2018, total single premiums sales were $27.3 billion, whichincludes a nearly $1 billion buy-in deal, a type of risk transferthat is novel for the U.S. market. Total U.S. corporate pensionobligations are about $3.1 trillion. By the end of 2018, about$135.5 billion in pension obligations have transferred to insurancecompanies.

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Last May, FedEx announced a $6 billion deal with MetLife, movingobligations to about 41,000 retirees and their beneficiaries to theinsurer. That was the largest deal since two blockbuster deals in2012, when GM transferred a record $25.1 billion in obligations toPrudential, and Verizon transferred $7.5 billion to Prudential.

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In December, Bristol-Myers Squibb transferred $3.8 billion in afull termination of its pension plan to Athene.

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Lockheed Martin shed about $2.5 billion in liabilities in a dealwith Prudential and Athene last year, and International Papertransferred $1.6 billion to Prudential in 2018.

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Mid-to-large size deals drove the pension risk transfer marketlast year, according to LIMRA.

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All told, 16 insurers provide data on sales to LIMRA. Twoinsurers entered the risk transfer market in 2018, anotherindication of corporate pension sponsors' growing appetite to movepension obligations off their books, and growing competition amonginsures to assume the risks.

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Risk transfer options have increased as the aggregate fundedstatus of corporate pensions has improved since the financialcrisis. According to the Milliman 100 Pension Funding Index, theaggregate funded status of the largest 100 plans was 89.9 percentat the end of 2018. Russell Investments put the aggregate fundedratio of the largest 20 U.S. plans at 85.3 percent.

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By some accounts, momentum in the risk transfer market is farfrom slowing. Improved funded ratios, uncertainty in equitymarkets, the potential for rising interest rates, and high premiumrequirements to the Pension Benefit Guaranty Corp. will continue todrive sponsor demand.

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According to MetLife's 2019 Pension Risk Transfer Poll, whichsurveyed 102 sponsors, 76 percent of plans hope to completelyde-risk their obligations, including 34 percent that said theyintend to do so within the next five years.

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“If market dynamics continue their current course, it isexpected that a significant portion of the over $3 trillion of DBplan liabilities that have not yet been de-risked will flow throughthe pension risk transfer pipeline over the next decade,” MetLife'sreport said.

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Nick Thornton

Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.