2016: Pension Risk Management Market - Key Opportunities and Challenges


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This study review the pension risk transfer market, which represents a growing opportunity for insurers and assets managers to help plan sponsors manage or remove their pension risk. Insurers are uniquely positioned to assume a plan’s pension liabilities through pension risk transfers using annuity buyouts or annuity buy-ins. Asset managers can help plan sponsors develop and implement a liability-driven investment or investing solution that can reduce funding status volatility. The study reviews market drivers, transactions, challenges and market outlook for pension risk management, and management of pension risk with liability-driven investment.



1. Introduction

2. Executive Summary

3. Pension Risk Management Drivers Review and Outlook 



  • DB Plans Remain Under Funding Pressure


  • Expected and Actual Investment Returns Decreased in 2015


  • Sponsors Increase Fixed Income and Equities, Reduced Alternative Assets in 2015


  • Funding Status Volatility Continues to Impact Balance Sheets


  • Plan Sponsor Contributions Decrease in 2015


  • PBGC Premiums Increasing Pension Expenses in 2015


  • Key Regulatory Actions Affect Liabilities and PRM Strategies




4. U.K. and U.S. Pension Risk Transfer Market Review 



  • Pension Risk Transfer Market Transactions


  • Pension Risk Transfer Market Players




5. Insurer Capital and Investment Challenges in the PRM Market 



  • Statutory Capital Supports PRT Growth


  • Group Annuity Portfolio Yields Decrease in 2015


  • Alternative Capital Market Solutions Emerge in 2015




6. Managing Pension Risk with Liability-Driven Investing 



  • LDI’s Goal: Reducing FSVaR


  • LDI Strategies Popular Among Plan Sponsors


  • Implementing LDI




Appendix: Pension Risk Transfer Insurer Profiles


Introduction

The PRM (pension risk management) market continues to attract attention from DB (defined benefit) plan sponsors, asset managers, consultants, and insurers in 2016. Driving this attention is the significant impact pension risk has on a plan sponsor’s balance sheet and cash flows.

This study reviews the PRM market’s key opportunities and challenges in 2015 and looks ahead to 2016. It begins by identifying the key drivers of pension risk among corporate DB plans. Using data from the 20 largest U.S. corporate DB plans, we quantify changes in those key pension risk drivers.

With a firm understanding of the key pension risk drivers:



  • We explore the issues life insurers face in developing their opportunities in the PRM market.


  • We report and analyze the development of PRTs (pension risk transfers) by type and country.


  • We examine key LDI (liability-driven investment or investing) concepts.


  • We provide key financial data on 12 insurers involved in the U.S. PRT market.