Scaling Operations for Pension Risk Transfer Growth Infrastructure and Workforce Planning

1. Scaling Operations for Pension Risk Transfer Growth: Infrastructure and Workforce Planning The Pension Risk Transfer (PRT) market is experiencing unprecedented growth, presenting a significant "greenfield opportunity" for technology and pension risk transfer services providers in the retirement and insurance sectors. With North American PRT activity hitting a post-pandemic record high of $53 billion in market volume in the past year, and global sales reaching $60 billion in 2021, growing by 40% in 2022, this burgeoning market necessitates robust and scalable operations. Organizations considering PRT transactions to mitigate volatility must proactively prepare to seize these market opportunities. This blog post will delve into the critical aspects of scaling operations for Pension Risk Transfer growth, focusing specifically on infrastructure and workforce planning to help organizations effectively navigate this booming market. The Booming PRT Market: An Operational Imperative The surge in PRT activity fundamentally reshapes the pension landscape. Defined benefit (DB) plan providers grapple with securing retirement benefits due to unpredictable investment returns, volatile interest rates, increasing life expectancy, and underfunded pension liabilities. To de-risk these substantial obligations, plan sponsors are increasingly transferring all or part of them to other firms, typically life insurance companies. This trend saw the PRT market peak in 2022, fueled by an urgent need to secure pension benefits in an uncertain post-pandemic world. Momentum is expected to continue due to favorable transaction terms for sponsors and insurers' continued desire to de-risk pension assets. The sheer volume of transactions – with almost half of North American PRT transactions nearing US$1 billion or more in 2021 and 2022 – underscores the need for scalable operations. In the United States alone, the PRT market recorded 568 transactions totaling $51.8 billion in premiums in 2022, and similar growth continues into 2024. This competitive environment, with 21 insurers now active in the U.S. PRT market (up from only eight a decade ago), demands that businesses considering PRT transactions strategically position themselves to maximize insurer engagement. Effective infrastructure and workforce scaling are paramount to handling this increasing demand and complexity. Infrastructure Planning for PRT Growth: Building a Robust Foundation

2. To effectively manage the influx of PRT transactions, organizations, particularly life insurance firms taking on these liabilities, require significant technology systems transformation. This involves a comprehensive overhaul or upgrade of their technological landscape to meet complex market demands for pension risk transfer services. Key areas where technology infrastructure is crucial include: •Data Migration: Transferring vast pension data from plan sponsors and recordkeepers to the insurer's systems is a complex task. Varying data formats, legacy systems, and sheer volume create challenges. Robust data migration tools and processes are essential to ensure accuracy, completeness, and integrity, preventing costly errors or delays. Meticulous planning, proper backup strategies, and specialized expertise are vital. •Fund Transfer: Managing the transfer of significant funds associated with pension liabilities requires secure, auditable, and efficient financial systems. These must integrate seamlessly with various banking and investment platforms for timely and accurate asset transfer. •Benefits Administration: Insurers need sophisticated systems to handle the full participant lifecycle, including complex pension administration rules, contract management, and provisions. These systems ensure accurate and timely benefit payments, regulatory compliance, and a smooth experience for annuitants. •Automated Query Resolution: As transaction volume increases, manual handling of customer queries becomes unsustainable. Automated solutions, often powered by AI-driven chatbots and knowledge bases, are essential for efficient, accurate, and scalable customer service. •Analytics-Based PRT Transaction Pricing: Leveraging advanced data analytics and machine learning models for pricing PRT transactions allows for more accurate and competitive premium setting. This requires robust data platforms capable of ingesting and processing large datasets to identify risk factors and optimize pricing strategies. •Cloud Migration: Technology and service providers are vital in securely managing the migration of sensitive pension data from on-premise systems to cloud environments, or between different on-premise or cloud systems. This migration must address complexities, data integrity, and stringent security risks, ensuring business continuity and data accessibility for all pension risk transfer services. A significant challenge lies in the varying technology maturity levels among recordkeepers, insurers, and plan sponsors. This creates a clear opportunity for system integrators and platform providers to collaborate, offering solutions that streamline the entire process of transferring liabilities, including relevant data, provisions, rules, funds,

3. and critical participant details. Furthermore, robust and clean data from plan sponsors themselves is essential to attract the attention of insurers and demonstrate how the annuity premium will be funded. Cybersecurity is another non-negotiable component of infrastructure planning. The exchange of "sensitive participant data" between recordkeepers, insurers, and sponsors poses "substantial security risks." Given that "Cyber Attack or Data Breach" is consistently ranked as a top global risk, robust cybersecurity measures are not just an operational necessity but a strategic imperative. Organizations must prioritize secure data management, implement advanced cybersecurity protocols, and establish rigorous data protection frameworks to safeguard this sensitive information from evolving threats. Workforce Planning for PRT Growth: Cultivating the Right Talent Beyond technology, the human element is paramount. Scaling operations for PRT growth requires a well-planned workforce strategy to ensure the right expertise is in place to manage complex transactions and emerging challenges. Key aspects of workforce planning include: •Specialized Expertise: Insurance firms need to develop or acquire new underwriting and actuarial capabilities to accurately assess risks and decide on PRT transaction premiums. This requires skilled professionals with deep understanding of pension liabilities, longevity risk, investment risk, and insurance financial modeling. •Retirement and Pension Domain Knowledge: Technology and service providers seizing opportunities in this underserved segment must leverage their existing expertise in the broader retirement and pension domain. This foundation is crucial for building new, tailored solutions and understanding the intricate nuances of pension plans. •Skilled Advisors: For plan sponsors, working with a respected and experienced advisor is crucial for successfully executing a PRT deal. Insurers are less likely to bid on projects with an "inexperienced advisory team" due to potential complexities and execution risks. Advisors active in the PRT market, backed by substantial data, provide invaluable insight into pricing and terms, positioning a plan sponsor competitively. This highlights the need for organizations to invest in developing or acquiring such expertise or through external partnerships for comprehensive pension risk transfer services. •Strategic Partnerships and Onboarding: As PRT business scales, insurers will increasingly view it as an "alternate revenue stream." This fosters strategic partnerships with technology and service providers to enhance various functions, including user-friendly annuitant onboarding processes and efficient

4. payment/annuity processing. This implicitly requires skilled professionals to manage these partnerships and the operational aspects of a growing client base. •Regulatory Compliance Expertise: The constantly "changing regulatory environment, varying state and regional taxation laws, and accounting nuances of different transaction types" demand specialized knowledge. Technology and service providers must assist insurers and sponsors in complying with these complexities, implying a need for a workforce proficient in legal, financial compliance, and tax expertise related to PRT. The broader context of "Failure to Attract or Retain Top Talent" being a consistently top global risk underscores the challenges organizations face in securing the specialized skills needed for PRT. Therefore, developing a robust talent strategy that includes targeted recruitment, continuous training, and effective retention programs for professionals with actuarial, legal, compliance, and technology expertise is crucial. Strategic Considerations for Long-Term Scalability and Success To reap the full benefits of PRT, including long-term de-risking strategies and securing insurer interest, organizations must prepare effectively. This involves: •Financial Due Diligence: Plan sponsors must "Follow the Money" by carefully examining their pension plans' funding status and understanding the accounting implications, such as settlement charges and annuity payments. Achieving a fully funded status is often the initial barrier to moving forward. •Operational Readiness: "Get Your House in Order" is a vital step. This includes having "robust and clean data" about pension plans and assets, conducting thorough legal due diligence, and being clear about the preferred deal structure. Rushing into PRT without being transaction-ready can lead to "missteps" and deter insurers. •Market Monitoring: "Track the Market" by using tools like annuity pricing trackers to get daily estimates of insurer charges. This market intelligence informs decision-making and helps optimize timing for transactions. •Collaborative Ecosystem: The increasing competition among insurers encourages more "sophisticated insurance solutions" and potentially "split transactions" where two insurers might bid on a single PRT. This complex ecosystem requires high levels of coordination and efficient processes. Conclusion Navigating the booming Pension Risk Transfer market requires a holistic and proactive approach to scaling operations. By strategically investing in robust technology infrastructure for data management, administration, and cybersecurity, and by

5. meticulously planning for workforce needs to ensure access to specialized talent and expert advisors, organizations can effectively seize this "massive untapped opportunity." The growth momentum in PRT is set to continue, making the ability to balance operational efficiency with strategic preparedness the key to securing pension benefits, de-risking liabilities, and unlocking long-term value in this evolving financial landscape, often through sophisticated pension risk transfer services.