Pension risk transfer premiums became more competitive in
October as deal volume is set to increase in the fourth quarter, a study by
Milliman showed.
The estimated buyout cost as a percentage of accounting
liabilities (accumulated benefit obligation) was 102.5% as of Oct. 31, down
from 102.7% as of Sept. 30, according to a report of the Milliman Pension
Buyout index. September's premium was up significantly from 102.2% as of Aug.
31.
Meanwhile, the average annuity purchase rates among the most
competitive rates fell in October to 99.4% from 100.2% a month earlier. The
index for competitive pricing stayed at 100.1% as of Aug. 31.
"Derisking activity typically increases toward
year-end, and with only four non-holiday weeks left in 2021 we may see some
insurers offering more competitive pricing rates to capture those last Q4
deals," said Mary Leong, a consulting actuary with Milliman and co-author
of the study, in a news release.
Average accounting discount rates remained level in October
from the previous month, while annuity purchase rates increased by 2 basis
points on average and 9 basis points for the most competitive rates, according
to the study.
The Milliman Pension Buyout index uses the FTSE Above Median
AA Curve and insurers' composite interest rates to estimate the average cost of
pension risk transfer transactions.
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