Mercer has identified a clear global trend in sponsors of defined benefit pension plans accelerating their intentions to
Many countries have significant pension obligations and plan sponsors have suffered the burden of persistently low interest rates, volatile equity markets and rising life expectancies — exacerbated by the protracted economic downturn. This has increased pension deficits significantly across many markets and presented domestic and multi-national CFOs with increasingly unwelcome pensions distractions.
The news earlier this month of General Motors’ intended discharge of about $26 billion of defined benefit pension liabilities to individual plan members and the Prudential Insurance Company of America is the latest in a series of high-profile companies proactively managing their pension obligations in the United States and Europe.
The trend is no surprise to Frank Oldham, Mercer’s global head of DB risk and senior partner: “The market for transferring pension risk away from plan sponsors has developed significantly in the U.K. in recent years with the number, size and sophistication of these deals all moving on in leaps and bounds. Other European countries, particularly the Netherlands and Ireland, are also starting to see more activity and interest in this area and so it was, therefore, just a matter of time before these developments transferred to a latent U.S. market.”
Gordon Fletcher, one of Mercer’s U.S.-based specialists in this area, described some of the trans-Atlantic developments: “We have seen Prudential announce a longevity reinsurance deal with a U.K. insurer, and we know that other U.S. insurers are also interested in U.K. business. This is significant since it shows that at least some U.S. insurers have such a strong appetite for pension risk that they are willing to travel over 3,000 miles to get it. Across the globe, we are seeing developments, with AEGON in the Netherlands transacting a longevity swap and the announcement that a Canadian insurer is now open for longevity business.”
