The BCG Pension Insider

June 2024 – Volume 152, Edition 1

Spotlight Series – Q&A with Clifford Chance

Entering the Pension Risk Transfer Market as a New Insurer – The Legal Perspective

Clifford Chance

Clifford Chance US LLP

Headquarters New York, NY
Size (No. of Lawyers) 400+ U.S. / 3,800 Global
Offices* 32 offices in 22 countries
Areas of Focus Services
Antitrust | Boardroom Risk and Reputation | Capital Markets | Corporate | Energy Transition | Finance | Insurance | Intellectual Property | Litigation & Dispute Resolution | Real Estate | Sustainability & ESG | Tax, Pensions, Employment & Incentives | Tech Group
Clients & Sectors
Financial Services | Consumer Goods & Retail | Energy & Resources | Healthcare & Life Sciences | Infrastructure | Insurance | Private Equity | Real Estate | Technology, Media & Telecommunications | Industrials, Transport and Mobility | Sports & Entertainment

* U.S. offices in New York, Washington, DC and Houston

Dennis Manfredi

Dennis ManfediCo-Head of US Insurance Practice

Dennis M. Manfredi has almost 25 years of experience in the insurance and reinsurance industry. Dennis focuses his practice on advising insurance companies, financial institutions, and investors on a broad range of transactional and regulatory matters.

Dennis Manfredi can be contacted at 212-878-3226, or

BCG: Describe Clifford Chance’s insurance transactional and regulatory practice, particularly your experience and capabilities in the PRT market?

Manfredi: The U.S. Clifford Chance insurance team is part of a top tier global insurance practice that provides legal services to many of the world’s leading insurance and reinsurance companies, private equity firms, banks and other financial institutions on a multitude of matters in transactional and regulatory roles. Our U.S. insurance team remains at the forefront of the PRT space as the market has experienced significant growth. We represent insurers, reinsurers and employers in a variety of PRT related matters, including assisting new participants entering the market, complex jumbo transactions, buy-out and buy-in transactions and establishing automatic and facultative reinsurance platforms. We have advised our clients through U.S. regulatory investigations, document and product filings and obtaining necessary regulatory approvals. Importantly, we work closely with our experienced ERISA team to provide our clients comprehensive support in the PRT market.

BCG: Describe some of the key initial considerations for an insurer entering the PRT market?

Manfredi: There are several initial considerations, some of which were touched upon in the May BCG Pension Insider¹. For one, a new entrant should identify which insurer(s) in its corporate group is best suited to participate in the PRT market. The insurer’s ratings, licensing status, balance sheet and administrative capabilities are all key factors, particularly in light of the required scrutiny by the plan fiduciary under Department of Labor guidance in Interpretive Bulletin 95-1 (“DOL 95-1”), which we discuss later. Fiduciaries may hesitate to choose new entrants without a proven track record given the gravity of a fiduciary’s duties and potential exposure. These characteristics are also fundamental in determining which segment of the PRT market presents the most sensible entry point as deal size can range from a few million to several billion dollars of liabilities. Some new participants have found the small- to mid-size market a good way to gain transaction experience, increase the size of its balance sheet and build overall market credibility before moving to the larger/jumbo market.

Another consideration for a new entrant is how to administer the assumed business. A seasoned annuity writer may already have the necessary capabilities, systems and personnel to administer the business. However, new entrants often outsource administration in the early years as the insurer becomes more experienced and develops the necessary infrastructure to bring the servicing in-house.

Lastly, new entrants should consider whether to leverage the reinsurance market as support for the new PRT business. By deploying a reinsurance strategy, the insurer can reduce capital drag, manage risk and increase capacity for new deals. We have helped insurers implement reinsurance facilities that provide for automatic or facultative reinsurance of PRT business. We often structure the reinsurance platform such that the parameters of the reinsurance transaction are negotiated in advance, allowing the primary insurer to incorporate the reinsurer’s pricing in its auction bid submission.

BCG: You mentioned that the Department of Labor’s Interpretative Bulletin 95-1 is a fundamental aspect of the PRT market. What are some of the key factors that are considered by fiduciaries as part of the DOL 95-1 analysis when choosing the “safest available annuity”?

Manfredi: As briefly mentioned before, a fiduciary is guided by DOL 95-1 when selecting an insurer for a PRT transaction. The key considerations in the analysis relate to the quality and diversification of the insurer’s investment portfolio, the size of the insurer, the insurer’s capital and surplus, lines of business and exposure to liability, the structure of the annuity contract and guarantees supporting the annuities (e.g. use of a separate account) and the availability and extent of additional protections, such as through state insurance guaranty associations. As part of its diligence, the fiduciary will consider, among other things, the insurer’s licensing and general regulatory compliance, balance sheet, credit ratings, and RBC level.

Importantly, in accordance with the SECURE 2.0 Act of 2022, the Department performed a broad review of DOL 95-1’s efficacy in the current PRT market. On June 24, 2024, the Department released its long-awaited report to Congress (the “DOL Report”). In the DOL Report, the Employee Benefit Security Administration (“EBSA”) did not propose any changes regarding DOL 95-1 and found that DOL 95-1 “continues to identify broad factors that are relevant to a fiduciary’s prudent and loyal evaluation of an annuity provider’s claims-paying ability and creditworthiness.” EBSA also noted that it would continue to monitor developments in the life insurance industry and the PRT market “to determine whether some of [DOL 95-1’s] factors need revision or supplementation and whether additional guidance should be developed” but made clear that any future changes would be subject to public notice and comment.

BCG: What are some of the key legal documents that new entrants should expect to prepare?

Manfredi: The primary transaction documents include one or more of the following: a separate account plan of operations which is filed for approval in the insurer’s state of domicile to establish the separate account (dedicated or commingled); a commitment agreement which the insurer and the plan sponsor execute to provide for, among other things, the payment of the premium and issuance of the group annuity contract; a group annuity contract that is issued to the pension plan sponsor; and individual annuity certificates which are individualized and sent to each annuitant. The plan of operations establishes the insulated separate account and provides guidelines for the use and operation of the account and establishes the insulation of the assets in the account from general account liabilities. This provides additional security of the insurer’s capacity to satisfy its obligations, particularly in a financial distress scenario. The group annuity contract and individual annuity certificates also need to be approved by the insurer’s domiciliary insurance regulator and certain other insurance regulators in jurisdictions where they are issued.

BCG: Can you briefly describe the bidding process in the direct PRT market, specifically the auction process?

Manfredi: Although some PRT transactions are negotiated privately between an employer and an insurer, most result from an auction process. The auction process generally involves multiple rounds during which diligence is conducted and pricing is refined. A key benefit of the auction process is that it enables the plan sponsor to obtain the best pricing and terms from insurers through competitive bids. Additionally, it is often the case that multiple insurers meet the standards under DOL 95-1 such that its proposed group annuity contract meets the qualifications as the “safest available annuity” thus providing the fiduciaries and plan sponsors with optionality in selecting an insurer, though the lowest bid price is usually selected.

BCG: In recent years, the New York Department of Financial Services (NYDFS) investigated and subsequently fined numerous insurers for certain unlicensed PRT activities in New York. Can you comment on how the market has changed in response?

Manfredi: The NYDFS investigations significantly altered the way insurers handle New York plan participants. Prior to the investigations, some insurers used employees in their New York offices to work on PRT transactions that involved the issuance of a single group annuity contract to an employer located outside New York that covered all plan participants, including New York residents. In its investigations, the NYDFS objected to insurance companies that were not licensed in New York doing an insurance business from a New York location, which included issuing certificates to New York residents and subsequently communicating with them when administering the business. NYDFS ordered the unlicensed insurers to use a New York licensed insurer to cover New York residents in all PRT transactions going forward.

As a result, one approach that has evolved, colloquially called the “two-GAC” approach, involves an insurer not licensed in New York partnering with a New York licensed insurer (affiliated or unaffiliated) to cover participants resident in New York at the time the group annuity contract is issued.

BCG: In closing, would you mind commenting on litigation risk in this market, in particular the recent actions alleging that there were breaches of fiduciary duties in certain consummated PRT transactions?

Manfredi: Recently, several class action lawsuits were filed against plan sponsors and independent fiduciaries, alleging breach of fiduciary duties due to the selection of a “risky” annuity provider. The plaintiffs appear to be taking aggressive positions with these claims as there is no clear basis for such claims based on the facts presented. Motions to dismiss have already been filed in all three of these cases so we may have an answer before long.

¹ This Q&A is Part II of a two-part series. To read Part I, click here.

About BCG Pension Risk Consultants | BCG Penbridge (“BCG”)

BCG specializes in assisting defined benefit plan sponsors with managing the costs and risks associated with their pension plans. Since 1983, BCG has successfully helped over 2,500 organizations achieve their pension de-risking goals.

To contact BCG, please reach out to Steve Keating at


Sample Interest Rates for a Pension Annuity Buyout
(Assumes no lump sums, disability, or unusual provisions)

Retirees (duration of 7) – 5.10%
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Annuity Purchase Rates as of June 1, 2024