NAIC regulators work to tighten investment guideline on PRT transfers

In a major push to safeguard the retirements of millions, the National Association of Insurance Commissioners is readying a new guideline to tighten how insurance companies manage the massive wave of pension liabilities landing on their balance sheets.

The proposal focused on pension risk transfers (PRTs) -- deals where corporations offload their employee pension plans to insurers. By overhauling the industry’s "investment guardrails,” regulators aim to ensure that the assets backing these lifelong promises are both realistic and resilient.

The Life Actuarial Task Force met on Thursday to discuss the guideline parameters.

Big market

The corporate pension market is estimated at $3.7 trillion, LATF pointed out. Over $200 billion of pension risks were transferred to group annuities over the last five years, and market volume tripled from 2015 to 2024.

For years, regulatory models often relied on generic investment assumptions. The new initiative seeks to bridge the gap between theory and practice. Under the proposal, insurers would be allowed to model reserves based on the higher-yielding, complex assets they actually hold—such as private credit—rather than outdated benchmarks.

However, this flexibility comes with a catch. To prevent companies from being overly optimistic, the NAIC plans to bake "conservatism" directly into the math. One key proposal includes a 0.50% spread adjustment to account for the inherent risks of "illiquid" assets—investments that are lucrative but difficult to sell quickly during a crisis.

The move is widely seen by industry analysts as a strategic "trade-off." By creating a clearer, more modernized framework for reserves held in the U.S., the NAIC hopes to reduce the growing trend of offshore reinsurance.

Hans Avery is an actuary with the American Council of Life Insurers, which submitted a comment letter on the proposed guideline. He spoke during Thursday's meeting.

"We think that risk-based approach to valuation increases alignment across industry, regulators and consumers, and helps us offer the most benefits to the most people," Avery said. "Group annuities backing pension risk transfer are a great example of a product line with the liability and asset characteristics to potentially justify different reinvestment assumptions.

"But we noted that there are other places, like immediate annuities or structured settlements, maybe term life insurance, that have at least some of the same characteristics."

Offshore capital grows popular

Many insurers have turned to complex, overseas structures to manage capital more efficiently. Regulators believe that providing a robust onshore standard will encourage companies to keep their risks, and their capital, within the reach of domestic oversight.

Regulators are prioritizing PRTs because of their unique, "locked-in" nature. Unlike traditional life insurance policies, pension transfers generally have no cash-out value and follow rigid payment schedules. This lack of flexibility makes accurate long-term reserve forecasting a matter of public necessity.

While the current focus remains on pensions, the NAIC is already exploring whether these stricter "guardrails" should be expanded to cover other insurance products, signaling a broader shift toward tighter financial scrutiny across the life insurance sector.

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.