How Safe is Your Pension?

NBC News Senior Financial Reporter Gretchen Morgenson covered some research I have been working on as a co-author with Stephane Verani and Nathan Foley-Fisher in an article titled “How Safe is Your Pension.”

The article is very thorough. As we argue in our paper, the business models of the largest U.S. life insurers have made them more vulnerable to a shock to the corporate sector (such as a pandemic like COVID-19), and many of these life insurers have completed billions of dollars of pension risk transfers over the last decade from a growing number of Fortune 500 companies.

As we continue to carry on through the uncharted waters of our current pandemic and economic recession, this now means the safety of your pension assets could be tied to theirs. However, aside from larger insurers taking large positions in private debt markets, a number of them also have very risky positions further down in the capital structure of structured credit. As we mention in the paper, many insurers are now controlled by private equity firms, who have captured 10% of the life insurance industry’s general account assets, up from basically zero nearly a decade ago (see Figure 4 in an earlier blog post).