The US pension risk transfer (PRT) market recorded approximately $3.8bn in buy-out and buy-in sales in the first quarter of 2026, reflecting a 47% decline compared to the same period last year, according to data collected and published by LIMRA.
But the headline numbers for US market, like its UK cousin, can be distorted by jumbo deals ($1bn+) – or a lack of them – which, along with the impact of a slew of lawsuits alleging plan sponsors breached their fiduciary duty by not selecting the safest annuity available (a requirement of the Employee Retirement Income Security Act), have conspired to account for this year’s slow start.
“It’s true that there has been something of a trend drop in the market given the legal background to the space. While we’re now beyond some of those lawsuits, it does take time for the approvals engine to re-start, but some of those settlements have happened in just the last year, so our anticipation is that some of these discussions are now happening and we’re seeing early indications of this activity coming back to the market,” said Richard de Haan, Global Risk Modelling Services Leader at PwC in New York.
“As for the jumbo market, the trend we have seen is that these deals tend to get done in Q4 because of the approvals cycle; roughly – regulatory approval filings in Q2, approval in Q3, deals completed in Q4. So, we’re not anticipating many significant announcements until the tail end of the third quarter into the fourth. Will 2026 exceed 2025? It’s hard to tell, but we are seeing activity in the smaller and medium end of the market.”
The legal risk the US PRT market has been (still is, to some degree) navigating relates to the current topic du jour of US life carriers allocating more investment dollars to private credit assets. While these may be deemed risky by some, less so by others, for actuaries, their concern is appropriately modelling these assets as part of the asset/liability management mechanism, but they are in the process of doing so differently, thanks to the VM-22 regulation, a principles-based reserving framework, which was introduced at the beginning of the year.
For a long time, US firms used rigid, one-size-fits-all formulae to figure out how much money to set aside to back annuity liabilities, but by January 1st, 2029, companies must ditch static mathematic equations entirely in favour of complex computer simulations, testing their financials – which can vary significantly from carrier to carrier – against hundreds of ‘real-world’ economic scenarios, like crashing interest rates or soaring inflation, to calculate the required reserve.
A three-year optional transition period began on 1st January this year, and de Haan says that firms began the process of analysing the changes to see how they could benefit from them a while ago – a road which leads directly to the PRT space.
“Firms started preparing before January this year – looking at proposed regulations, views, comment letters. There was a fair amount of field-testing activity prior to VM-22 coming in. Because we have this three-year adoption period, carriers are assessing what underlying liabilities would get the greatest advantage from the regulation, and the biggest impact is their PRT business.”
A couple of reasons why PRT blocks are so relevant here prevail. First, under VM-22, carriers don’t have to use generic industry mortality tables anymore; they can use company-specific, deal-specific data. If a carrier can prove via advanced data modelling that a specific group of blue-collar workers, for example, has a lower life expectancy than the generic national average, they can legally hold lower reserves against that block. Lower reserves mean they don’t have to lock up as much capital, making their bid on that pension deal cheaper than a competitor using the old rules.
Second, VM-22 calculates reserves based on the actual assets the insurer buys to back the pension cash flows, rather than a rate prescribed by regulators. Certain PRT cash flows are highly predictable – particularly those that don’t have deferred lives – so insurers with sophisticated investment teams can pick highly specialised asset portfolios that very closely mirror those pension payouts. VM-22 heavily rewards disciplined ALM by lowering the required reserve.
This means that pricing in the PRT space may well come down for certain deals, which would be a significant competitive advantage for those who get to the finish line first. But under VM-22, insurers can no longer look at assets and liabilities in isolation. For volatile products, they must simulate how policyholder behaviour changes across hundreds or thousands of different economic scenarios. While predictable blocks can often avoid this complex stochastic maths by passing strict exclusion tests, the fact that carriers must still build a very large computational infrastructure just to prove they qualify for the simpler rules means the market is unlikely to see a noticeable difference until next year.
“We carried out a survey recently and in the realm of PRT, as we look at companies who responded to the survey, no-one has early adopted VM-22 yet, and roughly 10% of respondents feel like they will be ready to adopt PRT reserving by this year-end,” he said.
“VM 22 is complicated. Most firms are trying to understand it and figure out their models because of the potential PRT pricing advantage the new regulation will bring. The complication is that in order to adopt it, they have to have asset modelling and systems in place so it’s difficult to get a pricing advantage this year. Based on our survey results, most of the action to get the reduction because of the PRT reserving will come next year.”
VM-22 is not the only ball that the industry is juggling currently. Last August, the NAIC adopted actuarial guideline 55, a new framework designed to provide regulators with more transparency into the asset adequacy of offshore asset-intensive reinsurance structures.
Regulators are currently working through the data from the December 31, 2025, annual statements and they may make some changes to the guideline – potentially this year – which adds another layer of complexity – and opportunity – to the puzzle.
“For year-end 2025, the industry in aggregate feels that the assets backing the onshore reserves, along with the requirement for AG 55, are sufficient to back the liabilities. But the combination of VM-22, and AG-55 – for example, do we re-assess our reinsurance strategy, do were-asses which third party to use, where should I use onshore vs offshore structures – makes the consideration for companies that much more interesting,” said de Haan.
So, plenty to keep the actuaries, operations and tech folks in the US PRT market busy in H2, then. In the meantime, the bulls are positive that, when all is said and done, the balance of this year will see the top-line numbers deficit (compared to last year) erased.
“Typically, the fourth quarter will see the most action – that’s been an industry trend,” said de Haan.
“The positive outlook folks are anticipating the post-legal situation to deliver a bit of an uptick relative to prior year.”
