Inhale deeply….hold it….hold it….ahhhhh, yes…..the smell of March Madness is in the air. Squeaking rubber soles against the mirrored glossy hardwood, arena buzzers ringing loudly, and frenzied collegiate bands ordained in bright-colored rugby shirts….the NCAA national collegiate basketball tournament is front and center and consuming the attention of americans everywhere. Trying to effectively blog against this tidal wave of sports fanaticism seems a daunting task. So I figured, if you can’t beat em’…join em’. Below we’ll cheekily consider the financial strength of several life insurers and see which one advances to be crowned the DOL 95-1 champion.

Before we unveil the bracket, some quick background regarding the US Department of Labor’s Interpretive Bulletin 95-1  aka the “Safest Available Annuity Provider Standard”. This piece of regulatory fiduciary guidance, which was issued following the collapse of some well-known life insurers (i.e. Executive Life, Mutual Benefit, etc.) offers a solid framework for evaluating and selecting an insurer. While DOL 95-1 is largely focused on ERISA fiduciaries sponsoring defined benefit pension plans (who are interested in procuring annuity settlement contracts), the framework remains useful for evaluating guarantors more broadly including in the context of a defined contribution plan investments, and/or a retail insurance company product. For those interested in a more technical dissertation I’d refer you to an article I penned for iiJournal’s Guide to Longevity Risk Management. In short, DOL 95-1 outlines six core criteria items which fiduciaries should be considerate of when evaluating insurers:

  1. Quality & diversification of annuity provider’s investment portfolio
  2. Size of insurer relative to size of proposed contract
  3. Level of insurer’s capital & surplus
  4. Lines if business of the annuity provider and other indications of an insurer’s exposure to liability
  5. Structure of the annuity contract and guarantees supporting the annuities, including use of separate accounts
  6. Availability of additional protection through state guaranty associations and the extent of their guarantees

A quick note of disclosure (close your eyes and imagine Jim Nantz’s melodic voice). All of the insurers discussed below are high-quality, financially strong institutions, any of which might be deemed to meet the guidelines codified under DOL 95-1. This exercise is intended to provide a general and fun introduction to the topic of analyzing a life insurer’s financial strength. It is not intended to imply one company is better or worse than another, nor is it intended to replace a more rigorous analysis and/or the engagement of an independent expert to assist with insurer/product evaluations. I’ve included links below to each insurers website so that readers can conduct their own due diligence and draw their own conclusions regarding each organization’s financial strength. Let’s go ahead and take a look at the tournament matchups.

Mutual Insurer Bracket

The mutual insurer bracket consists of four leading mutual life companies. The hallmark of a mutual insurer is that it is owned and operated for the benefit of policyholders as opposed to a stock company which is owned by shareholders. This distinction creates a wide disparity in terms of how mutual companies view risk, capital, and profit decisions compared to their stock company brethren. The tendency to hold more capital and flexibility to accept lower profits creates a natural alignment of the interests of mutual insurers with the policyholders who purchase their guarantees.

Quarterfinal Round

New York Life is the top dog in this half of the tourney bracket, facing off against the smaller firm from the west coast Pacific Life. New York Life easily defeats Pacific on the quality of their overall ratings, size, and consistent general account and risk based capital growth. In the matchup of  #2 Mass Mutual vs. #3 Mutual of Omaha, Mass Mutual gets the victory in a closer than expected match, using their larger size and capital position to earn the win over the smaller midwest firm. Hats off to Pacific Life & Mutual of Omaha who left it all out on the floor. Pacific Life’s robust Risk Based Capital level did not go unnoticed, and Mutual of Omaha’s stellar bond quality were clearly key factors in their gaining an invitation to this “best of the best” event.

Semifinal Round

#1 NY Life squares off against  #2 Mass Mutual in a battle of balance sheets. NY Life wins a squeaker in overtime based upon having marginally more size and higher portfolio bond quality.NY Life earns a trip to the finals and will square off against the winner from the stock insurer half of the bracket. Despite failing to advance, Mass Mutual is a perennial powerhouse in this tournament and we look forward to seeing them in action for many years to come.

Stock Insurer Bracket

Over in the other half of the draw, the stock insurer bracket contains four leading, brand name stock life insurers, two of which are true heavyweights in terms of their size and global reach. These publicly traded stock firms tend to have a shorter term focus on meeting earnings expectations and deploying capital in ways that foster share price growth.

Quarterfinal Round

Met Life is the top seed facing off against #4 American General (important to note that the regulated life insurance liabilities were not where AIG’s past problems stemmed from). Met Life chalks up the victory despite a second half comeback by the recently recapitalized American General. In the end, Am Gen just could not overcome their significantly lower ratings and dramatically smaller size. The #2 seed Principal vs. number #3 Prudential matchup witnessed an intense, see-saw match. Principal jumped out to an early lead based upon its business line diversity and lower exposure to volatile & expensive to hedge variable annuity liabilities. Prudential fought its way back into the match and eventually prevailed to win on a last second buzzer beater. In the end, Pru’s size and improved bond quality was just too much for the smaller Principal to match.

Semifinal Round

#1 Met Life squares off against  #3 Prudential in a battle of the 800 pound gorillas. This matchup is high scoring and fast paced, with lots of lead changes throughout. Prudential took a slight lead in the second half on the strength of innovation driving top-line results in product lines like variable annuities, synthetic stable value wraps, and jumbo pension closeouts. However, at the end of the day financial strength from a policyholder perspective is all about bottom line results, and Met Life sealed the victory on the strength of it recent strategic business re-organization and interest rate hedging program, decisions which while not headline grabbing are aligned with keeping the company on track to perform consistently. Met Life is headed to the “ship” to square off against its cross-town rival.


“Snoopy” vs. “The Company You Keep”…Beagle vs. Witty Phrase…Park Ave. vs. Madison Ave. This classic matchup started out as a competitive back and forth affair. However, in the second half, NY Life pulled away as Met Life became fatigued under the weight of variable annuity exposure and less well capitalized, significantly larger balance sheet. While Met Life covered the “Vegas odds” they were unable to overcome New York Life’s conservatively run, well-managed, mutual company business franchise.

So there you have it, I’m pleased to crown NY Life as the DOL 95-1 Tourney Challenge Champion. Let’s hope they offer a competitive price to complement their pristine balance sheet. In closing, I’d like to extend a note of recognition to all the high-quality, best of breed insurers who were called upon to support this fictional, fun, and hopefully interesting literary exercise.

I hope you enjoyed this written indulgence.  What do you think?

The video below is an absolute classic IMO. FYI, I’m a Syracuse University alum so I thought I’d throw this in to give a few added chuckles for readers/viewers. Advanced apologies for Mr. Boeheim’s salty tone.


With St. Patrick’s Day now officially in the rear view mirror, I thought I’d take the opportunity to craft a St. Paddy’s day themed blog post. That was the easy part. Then came trying to figure out how to cogently connect the two (Irish holiday & pension finance) in a way that made sense, was informative, and interesting to read. Not 100% sure if this is going to fit the bill, but nonetheless it should be mildly entertaining for those of you nursing hangovers.

Lucky Charms (the iconic General Mills cereal), also known as “the nectar of the gods” and a leading driver of the US obesity & diabetes epidemic, is best known for its wonderful colored marshmallows which come in 8 different shapes. The shapes represent Lucky’s (the leprechaun guy on the cereal box) charms, each having its own magical powers. As I started to think about this and try to relate it somehow to the pension market, it seemed that these 8 lucky charms could be easily analogized to 8 emerging best practices in pension risk management. Below, I bestow upon you The Lucky Charms of Pension Risk Management.

#1: Long Bonds: the “toe in the water” LDI weapon of choice…easy and relatively painless

#2: Funded Status Monitoring: the annual valuation process ain’t cuttin’ it anymore

#3: Investment Outsourcing: most pension committees lack governance processes and decision-making agility

#4: LDI Glidepaths: averaging into cost-effective liability hedging (see #2 & #3 above in order to tactically execute here)

#5: Terminated Vested Lump Sum Windows: begin strategically settling liability, expense savings

#6: Annuity Settlements: reduce the size and complexity of the pension program  see my older post linked below:

#7: Data Cleanup: you know…..those files sitting in the cabinet down in HR

#8: Accelerated Contributions: a worthy consideration for financially flexible organizations

So there you have it, the 8 Lucky Charms of Pension Risk Management. However, as we all have often heard, “you make your own luck in life”. Good things will happen to pension sponsors who are aware and actively considerate of the items above. Thanks for reading, that’s all for now…I need to go find some of those marshmallows…they are after all “MAGICALLY DELICIOUS”!

Now that I have your attention, I will quickly apologize for shamelessly borrowing the essence of a best-selling erotic novel, simply to enhance the  appeal and engagement of this post.  I digress.

Over the last few years, the US pension marketplace has witnessed the development of several indices which help support the discussion surrounding pension settlement costs. Primarily these pension settlement indexes (also called pension risk transfer or pension buy-out indexes) are marketing tools which help consulting and advisory firms to more effectively frame the pension settlement discussion with current and prospective clients. The objective of this post is to introduce readers to these indices and to discuss some of their similarities and differences. Before we delve deeper, it’s important for me to provide a few disclosures. First, nearly two years ago, I was fortunate to have worked closely on what I believe may have been the first pension settlement index to have been developed and publicly marketed in the US…The Dietrich Pension Risk Transfer Index.. This is an accomplishment that I am personally very proud of, but which introduces some inherent bias into my perspective on this issue, so feel free to draw your own conclusions. Second, I think all of the pension settlement indexes which I have seen and will discuss below have been thoughtfully designed by smart pension professionals, many of which I know personally, and have worked with over my dozen years working in the pension settlement marketplace. I have provided web links (at the end of this post) to each of the aforementioned indices, such that readers can conduct their own investigation and form their own opinions. Finally, I’d also ask that you consider weighing in on the poll at the end of this rant which asks the $60,000 question…”Which Annuity Settlement Index Method Do You Prefer?” Cue famous boxing referee Mills Lane…”LET’S GET IT ON”!!!

Dietrich Pension Risk Transfer Index:

  • Public inception: 2011
  • Back tested through date: January 2008
  • Current index level: 87.61 (Feb. 2013)
  • Commentary: Index is composed the following components:1. Average pension funding levels, 2. Current annuity rates/historical annuity rates (1yr, 3yr, & 5yr averages) & 3. Current annuity rates/current US Treasury & corporate bond yields. Settlement costs are lower as index rises. Only index which references pension funding levels.

QAS PRT 1000 Index:

  • Public inception date: Unknown
  • Back tested through date: September 2007
  • Current index level: Unknown
  • Commentary:”The QAS PRT 1000 Index© was constructed from research on 1000 of the largest DB plans in the U. S.  A Model Plan was populated based upon an analysis of present values from the largest 1000 DB plans.  The Model Plan uses common base line assumptions as a starting point:  RPA is the common mortality assumption and average RPA interest is the initial discounting rate.  The Model Plan was then valued using PPA mortality and PPA 3-Segment rates as of September 1, 2007.  The QAS PRT 1000 Index© is structured to have a beginning value of 100.0 as of September 1, 2007 which is the first applicable date for use of PPA 3-Segment rates.  The PPA 3-Segment Index of 100.0 as of September 1, 2007 becomes the Index Base” Source:

Penbridge PRT Index:

  • Public inception date: 2012
  • Back tested through date: January 2011
  • Current index level: $32,203,715 (Feb. 2013)
  • Commentary: “The Penbridge PRT Index represents the premium that an insurance provider would charge for a buy-out of a “typical” DB plan, and illustrates when the timing is more or less favorable to effect a PRT transaction”. Based upon hypothetical plan cash flows for a $25,000,000 pension plan. Higher index values indicate higher settlement costs. References index relative to PPA spot and PPA segment funding rates. Index was recently rebranded from the former Camradata Pension Risk Transfer Index. Source:

Mercer US Pension Buyout Index:

  • Public inception date: 2013
  • Back tested through date: December 2011
  • Current index level: 108% (eff 12/31/2012)
  • Commentary: “Published monthly, the Index tracks the relationship between the accounting liability for a hypothetical frozen traditional defined benefit plan and the estimated cost of transferring those liabilities to an insurance company. Annuity pricing data from a number of leading US life insurance companies is used to compile the Index.” Lower index values indicate lower settlement costs. Source:

As you can see the indexes above have some similarities as well as some differences….after all, variety is the spice of life.  At the end of the day, I’m not sure either of these indices is better/worse than another (though if you twist my arm for a less politically correct answer I’ll tell you the Dietrich Pension Risk Transfer Index is very dynamic, well constructed, and something I strongly urge pension practitioners to evaluate). However, as my golf instructor tells me, “Jay, it’s not the arrow, it’s the indian that really matters”. I do however believe that the marketplace is better off having these indexes, and that they do a nice job of heightening the pension risk management dialogue to include the settlement discussion. In closing it think it’s also important to mention that none of these indexes are intended to replace the plan specific detailed analysis and consulting that would be necessary to effectively evaluate and execute a pension settlement transaction.


state of the union

Article II, Section 3 of the United States Constitution, states the President shall, ” from time to time give to Congress information of the State of the Union and recommend to their Consideration such measures as he shall judge necessary and expedient.” With the broader national discourse consumed with a louder debate on important items like gun control and “Sequestration”, I thought I would exercise my executive privilege as the imaginary and “self-appointed” Commander-in-Chief of the US Pension Risk Transfer Marketplace to deliver my own State of the Union.

As the good folks at Kodak might say…a picture is worth a thousand words.  In the spirit of brevity, I thought I would let the above image do most of the talking here. My executive summary would be that I believe a paradigm shift is clearly underway and pension de-risking is poised to continue to deliver tremendous value to corporate pension programs which are focused on controlling volatility and preparing for their pension end game.

If I were to highlight one conclusion from the above illustration, it would be to note the level of 2012 Terminal Funding Group Annuity marketplace sales. While still relatively modest in absolute terms, the marked increase in 2012 sales (excluding GM & Verizon) came absent a material rise in interest rates and plan funding levels. It appears that increasingly companies are willing to pay to transfer benefit obligations to an insurer, in order to achieve complete cost certainty.

In closing I’d like to echo the immortal words of perhaps our nation’s most beloved former President, JFK from a 1961 speech in Germany…..Ich bin ein Berliner (I am a jelly doughnut)! Thanks for taking the time to read this. Let me know what you think!


Greek mythology recounts the tale of Sisyphus, a king who was punished by being forced to roll a massive boulder up a steep hill, only to see the boulder roll backwards before reaching its final destination at the top of the hill……each and every time he approached the summit. This tale is often used to enhance descriptions of everyday activities which might be seen as wasteful, unproductive, or endlessly challenging. Thus, we have an nice backdrop for a more pointed discussion surrounding the challenges of a pension committee with a similar massive boulder (monthly benefit payment obligations) and steep hill (navigating investment markets targeting smooth 8% annual return targets).

Retiree obligations comprise 30-50+% of the typical defined benefit pension program. The cost of these liabilities can run 4-8% of plan trust assets annually (depending on demographics and plan rules). Pension sponsors fund their obligations thru a combination of investment returns and cash contributions. Most plan sponsors attempt to maximize investment returns in order to minimize their own cash outlays, thus the traditional reliance on risky assets to earn higher targeted returns. Theoretically, funding and asset allocation decisions at their most basic are a pretty simple exercise in risk vs. reward:

  • More Risk = More Volatility = Potentially Smaller or Larger Expected Contribution Costs = Less Certainty (think less fixed income)
  • Less Risk= Less Volatility =Larger Expected Contribution Costs= More Certainty (think more fixed income)

In practice, these decisions can be more difficult against a backdrop of historically low interest rates, plan underfunding, and the sponsor’s core business enterprise which is competing for capital which might be otherwise allocated to the pension program.  Thus the comparison to Sisyphus, who endlessly struggles to productively move his boulder.

Others have written more extensively around the topic of money weighted returns/sequence of returns being the real driver of economic value in a pension plan program. Actual plan cash flows (benefit payments) are an important element to determining the money weighted asset returns. Once benefit payments are issued they leave the plan trust and are unavailable to participate in future market cycles. I’ve linked below some papers by Norman Ehrentreich “The Asset Return Cost Paradox” and Cutwater Asset Management “Developing an LDI Mindset” which touch further on this issue which is often lying silently under much higher level discussions and decision making focused on a targeted rate of return approach.

EhrentreichLDI Paper:

Cutwater LDI Paper:

Liability driven investing and pension de-risking is an area which has evolved rapidly in the last half a dozen years or so. Corporate pension plan sponsors now have a wide array of tools at their disposal to help manage the efficient de-risking of their pension program. These strategies will be most appealing to organizations who are challenged by volatility and open to considering some of the cost tradeoffs which are often necessary to obtain more predictable outcomes.

One such de-risking solution involves a partial risk transfer where the pension plan annuitizes its current retiree population with a highly-rated, well capitalized, private insurer. This strategy is commonly employed as part of the plan termination process where all benefit obligations are fully funded and distributed as part of the formal plan wind-up process. A retiree carve-out annuity purchase involves a more strategic decision (by a non-terminating pension plan) to reduce the size and complexity of its pension program. After annuitization, which formally settles the benefit obligation, the pension trust’s asset portfolio is no longer subjected to the difficult task of trying to serve two masters (#1: income and liquidity needed for current pensioners & #2: growth needed for minimize the costs of future pensioners). In the case of the Sisyphus analogy, this approach could be akin to increasing the size of the boulder (added costs to annuitize) while reducing the steepness of the hill (less near term cash flows to distract the growth potential of the remaining asset portfolio). While the simple elegance of the annuity based risk transfer strategy is clearly appealing, this approach is not a silver bullet, and will involve an organization having to come to terms which a variety of issues related to cash costs, accounting costs, IRS funding impact, asset allocation, and regulatory & fiduciary compliance.

Verizon, is a notable example of an organization which recently concluded that the benefits of this approach outweighed the costs, at least as it relates to their business, objectives, and outlook. Their decision last year to annuitize $7.5 billion of retiree obligations serves to validate this strategy. Also important to note, that this strategy is not new, it’s been around for years as an option which is readily available and fairly simple to execute. What is new, is the environment and mindset of CFO’s and pension consultants who are tasked with managing pension volatility, which creates an opportunity for the retiree carve-out/partial pension risk transfer strategy to become a useful option within the larger LDI/De-risking solution set. Finally, I’ve attached a link below to an older SEC Form 8-K from a small cap company that made a similar decision years ago to pay $75 million to purchase a group annuity contract that covered its 1,500 current retirees. This public document provides some interesting insights around how the company viewed and positioned this strategic decision to investors through its regulatory filing.

Good luck to you and your clients as you work to manage the Sisyphean task of balancing pension cost & risk issues.

Stunning Video Depiction of Sisyphus Struggling

Two years ago today witnessed the launch of an innovative new insurance based, guaranteed group annuity contract structure which was designed to provide a competitive, turnkey solution to help manage pension volatility. With 24 months having passed since the product launch, it seems like a good time to reflect on the LDI marketplace and the some of the activity related to Insured LDI and its manufacturer Pacific Life Insurance Company. Below I have presented some of the external & internal factors which have evolved over the last few years.

External marketplace factors:

  • Interest rates and funding levels have stayed low
  • Mild strengthening of US economy
  • Increased adoption of dynamic asset allocation glidepaths to manage funded status volatility and effectively phase in costs of liability hedging
  • Prevalence of delegated investment outsourcing solutions
  • Migration of existing intermediate and core bond portfolio allocations  to long duration government and long duration credit fixed income
  • Increased evaluation and adoption of settlement strategies employing  combination of voluntary lump sums and purchased annuities
  • Pension funding relief via MAP-21

 Internal Pacific Life factors:

  • Pacific Life acquired JP Morgan’s pension advisory group (August 2011), rebranded as Pacific Global Advisors
  • First Insured LDI contract sale announced in December 2011…less than one year after formal product launch
  • A modest increase in the observable sales/marketing effort driving the Insured LDI product
  • Pacific Life’s development of buy-in annuity contract product to add to their pension de-risking suite of products


The successful development and execution of any new product requires an effective blend of strategy, people, and patience. With only 24 months since the product launch it may be too early to declare victory or defeat. However, it seems as though Pacific Life is focused on the pension market as a driver of its business strategy. Personally, I think Insured LDI is a solid product (see link at the end of this post for those who desire a primer on its design and benefits) and its ability to track/hedge pension liabilities with no tracking error is a great feature (one which cannot be delivered by a non-guaranteed asset management product), which deserves a seat at the table with any pension sponsor looking to effectively evaluate the complete range of LDI solutions. Conversely, I know (based upon years of professional experience positioning and advocating for insured solutions) that guaranteed insurance products are, generally speaking, foreign to the pension consulting  and asset management ecosystem which prefer’s traditional benchmark driven mandates, manager databases & searches, consultant relations coverage, and institutional fee structures. I think there are a lot of consultants/LDI managers out there who might argue that the cost/benefit of the Insured LDI product is a bit like bringing a bazooka to a fist fight…at least as it relates to mid/large size plan sponsors who are funded at 70-80% and unable or unwilling to pay for that level of liability hedging .  At the end of the day selling an orange at the apple-fest is going to present some challenges. But one must remember Pacific Life is a mutual company and it may not need or want to transform the way people buy and generate massive billion dollar sales volumes. Carving out a niche of $5-$50 mil contract placement to buyers with specific needs/wants and collecting a couple hundred million annually may be enough to move the needle internally…and a few years down the road…with more education, awareness, and higher rates/funding levels…who knows what might happen. Meanwhile, the company remains positioned to continue to participate in the pension closeout/buy-out annuity market which is downstream from hedging liabilities and seems poised for growth.

Insured LDI Overview:

Dietrich & Associates Insured Pension Risk Transfer Overview:

Welcome to Pi (Pension Indemnification). My name is Jay Dinunzio and I am passionate about guaranteed institutional insurance products (less passionate about spelling & grammar which I am apologizing in advance for) and the variety of practical applications they can have to help manage retirement plan risks.

I am fortunate to have developed a robust and diverse network of industry contacts spanning insurance, retirement, asset management, consulting, legal, and plan sponsor functions. The experience I’ve gained and knowledge acquired over the last 12 years is a testament to those around me. This blog is my way of giving back and staying connected with a thoughtful discussion.

For those of you who haven’t had a chance to speak with or meet me, feel free to check me out on Linkedin at  and/or drop me a line @

Stay tuned for future posts inclusive of some editorializations, wit, and sarcasm…just to keep it interesting. In the meantime check out this vintage John Hancock TV commercial from 1971. Consider the following:

  • 1971 was the year PIMCO was founded
  • 17 years later Blackrock was founded in 1988
  • State Street Global Advisors was formed just 22 short years ago in 1990
  • John Hancock Life, formed in 1862, had already celebrated its 100th birthday by 1971
  • Clearly, one if the significant benefits of insurance products is the strength annd stability of the industry
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