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Retiree Benefits = 3-Card Monte


After one year of COVID-19 induced isolation, we all long for the chance to interact more closely and less virtually with friends and family.

While the adjustment to the new-normal of Covid has not been all bad, it’s hard not to miss crowded ballparks, restaurants, bars, and busy streets.

As a New Yorker, I also miss watching tourists hand over their money after losing unwinnable bets at the illegal Three-Card Monte tables that seemed to pop up out of nowhere at tourist hot spots all over the Big Apple.

Recent developments in the Pension Risk Transfer (PRT) industry, certain large corporate spin-offs, and large sales of annuity businesses remind me more and more of such downright unreputable Three-Card Monte games.

While U.S. companies continue to report 4th quarter results, research shows that pension transfer deals in 2020 started to pick up again after an initial COVID-19 induced slowdown.

It is believed that more than $165 billion in pension liabilities have been transferred to a handful of U.S.-based insurance companies since my team started tracking this data back in 2012.

In addition to PRT transactions heating up, 2020 has seen an enormous amount of asset and liability shuffling like cards in a casino, by insurers and reinsurers both on and offshore and an unprecedented amount of financial alchemy by for-profit life insurance companies taking advantage of regulatory arbitrage opportunities with wholly-owned reinsurance companies.

All this might sound pretty complicated, but it’s really all about them hiding the red card (financial reserves) by some pretty clever sleight of hand.

Insurance companies are required to hold assets in reserve to cover future policyholder claims – like the pension payments those insurance companies agree to make to retirees whose pension assets they acquire after a PRT deal.

Well, what has been occurring, that just does not pass some smell tests, is that life insurance companies that issue these annuities have been purchasing reinsurance from themselves and taking reserve “credit” for reinsurance that is not arm’s length.

What this means is they are replacing hard assets with an IOU from a reinsurance company they own. They then pay a premium to their own reinsurance firm in exchange for their reinsurer's promise to make good in the future.

These IOUs are circular and backed by what would be referred to as, “hollow assets” that would never pass muster at the regulated insurance company level.

To make matters worse, these captive reinsurers are not required to disclose their financial statements to the public.

A 2020 study by three Federal Reserve Board staff researchers documented how life insurance companies have in-fact stepped into the void when the banks it regulates were mandated to exit certain “risky investment businesses,” such as corporate lending.

When the banks were forced to shed these risky assets, it was insurance companies that stepped in with annuity capital that they have in growing dollar increments from so-called pension de-risking deals.

Nowadays, more and more insurance companies are using their regulated insurance vehicles to attract “sticky” capital like annuity premiums and then deploying captive reinsurers to allow them to offload risk and reduce reserve requirements.

Recent mega deals in the insurance industry have further consolidated annuity company holdings.

Insurers are also increasingly relying on affiliated asset managers to create and/or own collateralized loan obligations (“CLOs”), in what is referred to as a “triangular organizational structure.”

You might remember CLOs from the collapse of the housing market a little more than a decade ago.

With a new Administration now getting established in the White House, there appear to be some early signals of renewed interest in protecting retiree earned benefits by leaders in our nation’s capital.

In fact, some believe that enhancing retirement security might be the only bipartisan initiative this congressional session that might have legs. America and its retirees sorely need better government-mandated economic protections versus the financial wizardry and immense lobbying clout of the insurance industry.

--- The views and opinions expressed are those of the author and do not necessarily reflect the position of American Retiree --

Edward Stone has practiced law and represented individuals, entrepreneurs, and growth-stage companies in various capacities in the structured settlement, life settlement, litigation finance, and insurance industries for more than twenty-five years. Contact him at

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