The Importance of Innovation in the Pension Risk Transfer Market

The US Pension Risk Transfer (PRT) market remains strong as plan sponsors continue to review their current pension strategies. With more sponsors seeking derisking strategies and their specific needs evolving, insurers have an opportunity to add innovative solutions to their suite of Pension Risk Transfer products.

How Does Innovation Play a Key Role in Pension Risk Transfer?

The US PRT market has seen record annual volumes over the last few years driven by large transactions, rising pension funding ratios, and rising administrative costs, as noted in our quarterly PRT Monitors. The growing demand from plan sponsors for PRT has increased the number of insurers participating in the market and encouraged PRT providers to find new strategic solutions to increase capacity and meet the market’s evolving needs.

With the evolution of the market over the past 10 to 15 years, we have seen a handful of innovative solutions arise as different PRT products have been introduced. Prior to 2012, the majority of PRT transactions were plan terminations. As the market grew, retiree lift-outs became more popular as they allow plan sponsors to take a gradual approach before arriving at a full termination, starting with lifting-out sections of the plan and eventually progressing all the way to full plan termination. Retiree lift-outs can take as little as 3-6 months to complete as they don’t require the same amount of coordination and regulatory approval as plan terminations.

Another example of innovation in recent years are buy-in transactions for plan terminations. This type of transaction allows plan sponsors to lock in PRT pricing, which can then be converted into a buyout at a later date once the plan termination is complete. Due to locked-in pricing, a plan sponsor can take advantage of competitive pricing and accelerate the ability to prevent pension risks such as:

• Longevity risk – pension plan members living longer than expected may result in higher pension payouts
• Fluctuating interest rates – can lead to increased pension liability, in which the providing institution is left with less assets budgeted for pension payments versus what is owed to retirees
• Investment – improperly invested funds or a negative shift in the economy can cause an institution to be short on funds

Since 2021, we have seen over 30 buy-ins for plan terminations, compared to 2015 through 2020, where we only saw one.

Innovation at LGRA

LGRA entered the US PRT market nearly 10 years ago and has grown alongside the market, with over $12bn in new business since its inception, $2.2bn of which was written in 2024, its largest year on record. In 2024, LGRA was also awarded the Pension Risk Transfer Innovation of the Year award by InsuranceERM jointly with Reinsurance Group America (RGA) for a split transaction solution aimed at larger transactions.

Recognizing that more plan sponsors were looking to complete larger transactions, LGRA and RGA worked together to create a competitive split transaction solution that is uniquely positioned for the larger end of the PRT market, increasing capacity and meeting sponsors’ needs. The arrangement combines the financial strength and experience of both businesses, with LGRA as the lead administrator responsible for servicing all participants transferred as part of the transaction.

Alex Gagnon, VP, Head of Distribution at LGRA, says that insurers in the PRT market should be prepared to meet the unique needs of plan sponsors through innovation in their capabilities, especially as the market continues to grow.

“The Pension Risk Transfer market continues to evolve, reshaping the way organizations can manage long-term liabilities through offering more flexible, efficient solutions that balance risk management and financial stability in an ever-changing landscape. Insurers should be ready to support plan sponsors by offering customizable solutions to meet their needs.”

Read more about the innovation award here.