Q&A: Leader of Nationwide Pension Risk Transfer talks industry trends, expectations

Cole: Although Q2 2024 PRT industry sales were down 31% year-over-year at $11.3 billion, year-to-date sales stand at $26 billion – up 14% over this time last year. Largely driven by two multibillion-dollar deals to start the year, we have continued to see elevated activity on deals larger than $500 million through mid-year, accounting for virtually all the industry’s premium growth year-over-year. Favorable market conditions for PRTs and competitive pricing from insurers have encouraged plan sponsors to continue to seek opportunities that bring the strength and stability of the insurance industry to their employees and retirees, which we expect will continue to fuel demand for PRTs in the second half of the year. 

Cole: While we expect the third and fourth quarters of the year to remain busy, we anticipate overall PRT industry sales to be below results from last year. We’ve seen quite a few large transactions in the first half of the year, however our prediction is that these are outlier transactions – meaning the market may come up short of last year.

Additionally, we anticipate the Fed will cut interest rates before year end as they try to stick a soft landing for the economy and avoid a recession. Although we’re unsure how large cuts will be, we expect plan sponsors may become more selective about the plans they try to de-risk as funded status’ decline.

Lastly, history tells us to expect volatile markets in the weeks before and after a U.S. Presidential election. Plan sponsors may be wary of de-risking in the midst of potentially tumultuous markets, holding off on transferring until late 2024 or early 2025.

Cole: Earlier this year, the Department of Labor (DOL) reviewed Interpretive Bulletin 95-1, which directs the process plan fiduciaries must take when executing a PRT. The DOL chose not to make any recommendations regarding changes to the bulletin at this time. We believe it is good for Congress and the DOL to take an interest in PRTs to continue to ensure the safety and security of plan participants and are pleased they found the marketplace continues to be healthy and competitive – particularly against the backdrop of several lawsuits pending in the PRT industry currently. The success and security of PRTs since the DOL issued 95-1 is commendable. In fact, it’s one of the things we pride ourselves on here at Nationwide – our excellent customer service, strength and stability make us a smart choice for plan sponsors looking to transfer pensions.

Cole: After years of volatile markets, plan sponsors are aiming to reduce their financial risks by focusing more on managing their core business revenue, which has led to the growth of the PRT market. Insurers are receiving more cases than they can write, which may lead to more declined transactions as the year progresses. It’s important for plan sponsors to work with advisors who understand the complexities of the PRT market, helping them connect with insurers offering strength, stability, capacity and a proven risk management track record.

For example, at Nationwide, we’re focused on nimble growth, allowing us to successfully adapt to changing markets so we can navigate challenges and seize opportunities. We’re doing this through a commitment to process excellence and continuous improvement. We encourage our team to collaborate and find ways to make processes more efficient using lean principles. Lean is a way of thinking about creating value with fewer resources and less waste and includes steps like defining value, creating flow and pursuing perfection. Using these principles, we’re positioning our PRT model to be successful in any market condition.

RTM-0148AO
09/2024