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17 December 2015

New entrants point to health of pension risk transfer marketplace

Photo: Phil Waldeck
Managing pension risk continues to be at the top of the list of many companies’ financial challenges, and the market isn’t showing any signs of slowing down.
“Not only did 2015 boast the greatest number of pension risk transfer transactions in 20 years, but it also saw new entrants coming into the marketplace and new deal structures emerging,” said Phil Waldeck, head of Pensions & Structured Solutions for Prudential Retirement at a media dinner hosted by Prudential Retirement on Dec. 14 in New York City. “We see this as a strong sign that points to the health of the pension risk transfer marketplace in 2016.”
New pension risk transfer deal structures like the “split-transaction model,” where two or more insurers split the pension liabilities they take on from a corporate plan sponsor, allow greater flexibility for sponsors and create opportunities for new insurers to enter the marketplace. 

An example of this model in 2015 was the Philips Electronics split transaction between the Prudential Insurance Company of America, Legal & General USA and OneAmerica. Another innovative deal structure in 2015 was manifested in the recent JCPenney pension buyout, which, in conjunction with a lump sum payment, allowed the company to transfer a significant portion of its pension obligations and assets while ensuring the remaining plan maintained its overfunded status. 
Waldeck predicts from $10 billion to $15 billion in pension liabilities will be transferred from U.S. corporate plan sponsors to insurers in 2016 and an equally vibrant pension risk transfer market in the U.K. And many years down the road, there will be “new flavors” of pension risk transfer emerging in the U.S. marketplace such as pension buy-ins and longevity-only transactions (now more prevalent in the U.K.). 
“Expect to see more sponsors engaging with insurers earlier in the process so they can have greater flexibility in size and deal structure, resulting in their ability to transact when and how they want,” he said.  

Want to speak with Phil? Contact Josh Stoffregen.

Josh Stoffregen
phone: 973-802-3996
mobile: 973-204-2540
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