U.S. insurers sense opportunity in unwanted pension plans
U.S. insurers are buying corporate pension plans at a record clip as rising interest rates and all-time high stock-market values give companies the perfect excuse to offload them.
Calculating they can make more money from selling companies an annuity to cover the cost of the pension plans and then invest the proceeds in bonds and other securities, insurers are competing to persuade corporate America to sell them their pension risk.
These deals, known as pension risk transfers, have been around for at least 90 years, but they can be limited by a Catch 22: in good times, corporate leaders feel less of a need to rid their companies of pension burdens, and in bad times it is more expensive to do so.
“There’s a huge opportunity for the insurance industry,” said Ellen Kleinstuber, who advises pension-plan sponsors as an actuary for CBIZ Inc.
Last week, Prudential Financial Inc, the biggest player in pension transfers, said it had finalized $2.2 billion in pension deals during the fourth quarter, including a $1.8 billion deal with United Technologies Corp.
Other large insurers, including MetLife Inc and Principal Financial Group Inc are also competing for hefty pension deals as smaller insurers jockey for a slice of the market.
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