Pension Risk Transfers Drive Growth in U.S. Life Insurance Sector
Pension risk transfers (PRTs) are emerging as one of the fastest-growing segments within the U.S. life insurance sector, driven by both macroeconomic and market-specific factors. J.P. Morgan Chase & Co.'s recent research highlighted that U.S. private sector employers manage frozen or closed defined benefit (DB) pension plans with assets totaling approximately $3.2 trillion. These legacy plans represent a significant pool of liabilities that many firms are increasingly transferring to insurance companies through PRT transactions.
The growth trajectory of the PRT market is supported by several factors including improved funding statuses of DB plans, rising premiums from the Pension Benefit Guaranty Corporation, investor resistance to pension liabilities, and increasingly competitive pricing and terms from insurers entering the market. J.P. Morgan projects annual PRT transaction volumes could reach close to $100 billion within the next six to seven years, indicating substantial continued demand from plan sponsors.
Interest rates and equity market performance have played critical catalytic roles. Higher interest rates since 2022 have reduced pension liabilities, improving the cost-effectiveness of transfers for sponsors. Additionally, sustained strong equity markets over the past decade and a half have enhanced pension plan funded statuses, making it more feasible for companies to engage in de-risking transactions. Industry data reflects a recent decline in average pricing for pension buyouts, signaling increased insurer competition and favorable market conditions for plan sponsors.
Despite a market slowdown in early 2025 following record activity in the prior year, consulting reports show PRT activity is accelerating again, suggesting renewed momentum. Key risks identified within PRT deals include interest rate fluctuations, credit risks, equity market volatility, and longevity assumptions. Of particular concern is longevity risk, as improvements in life expectancy challenge insurers' mortality models, especially for blocks covering younger beneficiaries requiring longer-term annuity payouts.
Leading insurers such as MetLife, Prudential, Corebridge, Principal Financial, and the Reinsurance Group of America (RGA) are positioned to capitalize on PRT market growth. MetLife’s involvement in high-profile jumbo PRT transactions, including deals with FedEx and IBM, alongside its recent launch of a reinsurance entity for liability transfers, demonstrates strategic positioning. Prudential's strong asset management capabilities and substantial PRT transaction history, including deals with General Motors and Verizon, further underline its market presence.
Regulatory scrutiny of PRT deals is increasing, which may influence transaction volumes moving forward. While PRTs offer a promising growth avenue in a traditionally slow-growth life insurance sector, these deals carry inherent risks that insurers must manage carefully. J.P. Morgan’s analysis underscores the importance of sophisticated mortality and longevity risk management to sustain profitability and meet the evolving needs of private pension plan sponsors.