London Market Monitor – 31 August 2022
Our August 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. While we continue to monitor annuity purchase rates from all insurers, we have now also expanded our analysis to reflect the possible impact of competitive pricing to our estimated buyout cost. Figure 1 illustrates retiree buyout costs based on both an average of all insurer rates in our study and on just the most competitive rates, which represents the price savings that may be achieved when selecting between bids from multiple insurers.
During November 2020, average accounting discount rates decreased by 20bps, while annuity purchase rates decreased by 9 bps (average) and 11 bps (competitive). This caused the average estimated retiree buyout cost as a percentage of accounting liability (accumulated benefit obligation) to decrease from 102.9% to 101.8% while the competitive pricing trend decreased from 100.3% to 99.4%.
When considering these results, please keep the following information in mind:
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.