MetLife Inc. (MET), the largest U.S. life insurer, said the deal reached by No. 2 Prudential Financial Inc. to assume pension liabilities from General Motors Co. (GM) may spark more transfers of risk to financial firms.
“It’s fair to view that as a bit of a catalyst,” said William Wheeler, president of the Americas at New York-based MetLife, in a conference call today. “That’s causing other corporate treasurers of large traditional companies with old traditional pension plans to think hard about what they should be doing. Certainly there’s more conversation now than there was pre-GM.”
GM, the largest U.S. automaker, said in June it would cut its pension obligation by $26 billion by offering payments to about 42,000 retirees and shifting plans to Prudential (PRU) for workers who don’t take lump-sum awards. Detroit-based GM agreed to contribute $3.5 billion to $4.5 billion in cash to the salaried pension plan to help fund it and purchase the annuities from Prudential, the automaker has said.
Low interest rates may pressure employers to seek to transfer their obligations, because it is harder for companies to generate returns on funds set aside for pension liabilities, Wheeler said. Insurers are well equipped to take on the contracts because they are used to managing large pools of assets and have experience dealing with risk tied to life expectancies, Newark, New Jersey-based Prudential has said.
“I do think you’ll see more deals, more big deals,” Wheeler said, adding that low interest rates also pressure insurers and could limit the number of transactions. “We will not do a big closeout just so we can print a big deal.”