Insight
London Market Monitor – 31 May 2022
Our May review of the markets and Solvency II discount rates.
As the Pension Risk Transfer market continues to grow, it has become increasingly important for plan sponsors to monitor the annuity buyout market when considering a plan termination or
de-risking strategy. Figure 1 illustrates retiree buyout costs with two different metrics: the red line represents only the most competitive insurers' rates from each month, while the blue line represents a straight average of all insurers' rates in this study.
These metrics demonstrate two important concepts. First, the competitive bidding process is estimated to save plan sponsors on average around 3.9% as of May 31. Second, retirees can be annuitized for an estimated 98.6% of accounting liabilities (accumulated benefit obligation).
During May 2022, average accounting discount rates increased by one basis point (bps), while competitive annuity purchase rates decreased by 11 bps. This caused the estimated competitive retiree buyout cost as a percentage of accounting liability to increase from 97.7% to 98.6%.
Figure 1: Milliman Pension Buyout Index as of May 31, 2022
When considering these results, please keep the following information in mind:
- Annuity pricing composites are provided by the following insurers: Prudential Insurance Company of America, American United Life Insurance Company (OneAmerica), American General Life Insurance Company (subsidiary of AIG), Minnesota Life Insurance Company (Securian), Pacific Life Insurance Company, Metropolitan Tower Life Insurance Company (MetLife), Massachusetts Mutual Life Insurance Company (MassMutual), and Banner Life Insurance Company (Legal & General America).
- A representative retiree population was used.
- Baseline accounting obligations are estimated using the FTSE Above Median AA Curve. The ratio will be different for plans that use other methods to develop their discount rates.
- Plan sponsors should note that specific characteristics in plan design or participant population could make settling pension obligations with an insurer more or less costly than estimated.
About the MPBI
The Milliman Pension Buyout Index (MPBI) uses the FTSE Above Median AA Curve and annuity purchase composite interest rates from eight insurance companies to estimate the cost, as a percentage of accounting liability, of transferring retiree pension obligations to an insurer. To review previous monthly findings, visit milliman.com/en/periodicals/Milliman-Pension-Buyout-Index.