Insured LDI Turns 2 Years Old!!! Happy Birthday & Marketplace Reflection

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:


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