New risks present new opportunities


By Keith McDonagh
Head of the Institutional Solutions businesses for Massachusetts Mutual Life Insurance Co. (MassMutual).
Posted on Apr 6, 2018

The year has started with a more volatile financial market landscape, presenting both new risks and new opportunities for businesses and institutions.

The stock market continued its bull run earlier in the year and has since been followed by periods of increased volatility. Meanwhile, interest rates continue to move upwards as the Federal Reserve manages signs of inflation.

On the government front, new federal tax legislation cut corporate income-tax rates, which may benefit business profits. Additionally, the prospect of tariffs has sparked considerable debate and may have caused some market uncertainty.

This changing economic and policy climate creates an opportune time to reflect on the possible impacts for corporate and institutional balance sheets and income statements. Financial managers may want to consider evaluating the risks their enterprises face, and consider new strategies and opportunities to help manage those risks.

Management of defined benefit (DB) plans is a case in point. Rising stock prices and interest rates have helped many DB plans improve their funding ratios. Additionally, the federal tax reform bill is expected to boost DB funding ratios even higher. U.S. companies have until mid-September to consider accelerating plan funding and apply the higher 35 percent corporate tax rate when deducting contributions to their DB plans from their taxes

Improved funding ratios can help companies better manage long-term funding liabilities in their DB plans. Also, improved ratios may make it more affordable for companies that want to consider pension risk transfers (PRT) or other risk mitigation strategy. 

U.S. single premium PRT product sales hit $23.9 billion in 2017, up from $13.7 billion in 2016, a 68 percent increase, according to a survey of sales by LIMRA International1. PRT sales in 2017 marked the second-largest annual total on record, ranking only behind the $36 billion in deals reported in 2012.

Within employee benefit offerings, the rising costs for healthcare and other benefits is another area where companies can evaluate options to help manage this financial risk. Institutional insurance such as corporate owned life insurance (COLI) and bank owned life insurance (BOLI) are specifically designed to help companies fund these important benefits.

Long-term insurance policy proceeds such as death benefits and cash-value loans can be used to fund a variety of employee benefit programs that a company may not otherwise be able to offer, such as health and welfare benefits, retirement programs and deferred compensation programs. The ability to affordably offer these benefits may enable companies to attract and retain the talented employees critical to their business success.

Rising interest rates and stock market volatility also provide opportunities for companies that sponsor defined contribution plans to evaluate their stable value and mutual fund line-ups.

The source and timing of both risks and opportunities can be hard to predict. Often, it’s the emergence of challenges – market volatility, rising interest rates, rising healthcare costs and others – that help clarify the needs and lead to possible solutions. This year is shaping up to be no different.




1LIMRA International, Secure Retirement Institute, Group Annuity Risk Transfer Survey, Fourth Quarter 2017,

The information provided is not written or intended as specific tax or legal advice. MassMutual, its subsidiaries, employees, and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own, and do not necessarily represent the views of Massachusetts Mutual Life Insurance Company.