Quarterly Annuity Update

•  Only 6% below peak sales years in 2022 and 2024
• $31.2 Billion of buy-out sales, a decrease of 35% less than 2024 sales
• $17.5 Billion of buy-in sales, an increase of 372% over 2024 sales

•  A total of 17 buy-in contracts in 2025, a 70% increase over 2024 contract volume
• In comparison, 683 buy-out contracts sold in 2025, 13% less than 2024 contract volume  

Sales activity so far in 2026 off to a slower start after high volume in Q4 2025

• By the end of Q1 2026, interest rates are back above year-end 2025 levels
• Could be a tailwind for transaction activity in Q2

New carriers are entering the market

• Constellation would be the 24th Carrier in the U.S. Market
• Midland National is entering the buy-in market for lower premium transactions

EQUITIES MIXED IN Q1 2026

INTEREST RATES RISING IN Q1 2026

• US Large Cap (S&P 500) decreasing 4.3%
• US Small/Mid Cap (Russell 2000) increasing 0.9%
• International (MSCI ACWI Ex US) decreasing 0.7%

• Treasury yields decreasing
  • 2-Year increasing 32bp from 3.47% to 3.79%
  • 10-Year increasing 12bp from 4.18% to 4.30%
  • 30-Year increasing 4bp from 4.84% to 4.88%

Strong equity market gains in Q3 2025 positively impact defined benefit (DB) pension plans by boosting asset values, which can improve funded status and reduce future contribution requirements. With U.S. large caps up 8.1%, small/mid caps up 12.4%, and international equities up 7.0%, plans with diversified equity exposure likely saw meaningful growth. This may also create opportunities for de-risking strategies, such as pension risk transfers, and can lower pension expense on corporate financial statements.

Falling interest rates in Q3 2025 negatively impact defined benefit (DB) pension plans by increasing the present value of future liabilities. As Treasury yields declined—2-Year by 12 basis points, 10-Year by 8 basis points, and 30-Year by 5 basis points—discount rates used to value pension obligations likely fell as well. This leads to higher reported liabilities, which can reduce funded status even if plan assets performed well. Sponsors may face increased balance sheet volatility and higher pension expense, especially if asset growth doesn’t offset the liability increase.

PENSION PLAN FUNDED STATUS DECLINED IN Q1 2026

CREDIT SPREADS HAVE WIDENED

• Plan assets with a traditional 60% equity / 40% fixed income allocation decreasing 1.7%
  • 40% S&P 500; 10% Russell 2000; 10% MSCI ACWI Ex US; 40% Bloomberg US Aggregate Bond
• Plan liabilities with a 13-14 duration decreasing 0.7%
• Excess return of assets over liabilities of -94bp

• FTSE Pension Liability Index increasing 15bp  from 5.61% to 5.76%
• FTSE Pension Liability Index  - Intermediate increasing 17bp from 5.46% to 5.63%

Improved funded status in Q3 2025 reflects strong asset performance relative to liability growth. A typical pension plan with a 60/40 equity-to-fixed income allocation saw assets increase by 6.0%, driven by gains across U.S. and international equities and bonds. Meanwhile, liabilities—based on a duration of 13–14 years—rose 3.1% due to falling interest rates. The excess asset return of 286 basis points over liabilities strengthens the plan’s funded status, potentially reducing future contribution needs and creating opportunities for de-risking or pension risk transfer strategies.

Narrowing credit spreads in Q3 2025, reflected by a 13-basis point drop in the FTSE Pension Liability Index (from 5.58% to 5.45%) and its intermediate counterpart (from 5.46% to 5.33%), increase the present value of pension liabilities. For defined benefit (DB) plans, this means higher liability valuations, which can negatively affect funded status if asset growth doesn’t keep pace. Sponsors may see increased pension expense and greater balance sheet volatility, especially for plans using corporate bond yields to discount liabilities.

PENSION LIABILITY INDICES

PENSION LIABILITY CURVE

This curve compares pension liabilities across different maturities (6 months to 30 years) at two points in time. It shows how liabilities shift with changes in the yield curve, helping plan sponsors understand the timing and magnitude of future obligations.

INDEX MODEL LIABILITIES

FUNDED STATUS SENSITIVITY

This chart helps plan sponsors understand how interest rate changes affect liabilities and funding levels which is critical for risk management and strategic planning. It shows how a pension plan’s funded status reacts to shifts in the yield curve, ranging from -2.0% to +2.0%.

Each row represents a starting funded status (from 70% to 120%), and each column reflects the impact of interest rate changes. Blue cells indicate improved funding (typically from rising rates), while gray cells show deterioration (from falling rates). For example, a plan that is funded at 100% today could decline to 91% funded with a -2.0% decrease or rise to 111% with a +2.0% increase in interest rates.