The Life and Annuities (L&A) industry continues to wrestle with the complexities of managing legacy portfolios, particularly long-duration, high-guarantee contracts. One widely adopted solution has been the creation of closed blocks, which help insurers control risk and maintain operational focus. In the US alone, closed blocks account for more than 150 million policies, with a whopping USD 2.4+ Trillion in liabilities.

This paper explores the multi-pronged challenges of managing closed blocks and the opportunities they present to acquirers. It highlights how insurers and re-insurers can turn closed block management into a strategic advantage by collaborating with digital-led domain partners, leveraging their AI experience to strategically modernize operations.

The Need for Balancing Legacy Obligations with Future Growth

Closed blocks, once considered stable revenue streams, are now a source of rising operational complexity and capital strain. An EY survey showed that a significant share of insurers have 50 percent or more of their capital tied up in closed block portfolios,¹ making efficient management essential to freeing capacity for innovation and improved profitability. In reality, these portfolios often receive limited strategic attention as organizations direct their resources toward growth.

Closed blocks typically run off at 4-10 percent per year, depending on the product type,² creating a growing operational and capital drag for insurers. Shrinking block sizes, low investment yields, legacy technology and rising administrative costs erode their efficiency as well as margins. Talent attrition and regulatory changes – such as the Financial Accounting Standards Board (FASB) updates, International Financial Reporting Standard 17 (IFRS 17) and the UK’s Financial Conduct Authority (FCA) guidance – further complicate efficient management. At the same time, growing private equity-led ownership and shareholder expectations emphasize the need for sustained profitability.

The resulting pressure to balance operational and capital efficiency makes closed block management a complex and strategic priority in the industry today.

Systemic Risks and Rising Costs of Closed Blocks

Running closed blocks on legacy systems that lack scalability and interoperability is becoming increasingly inefficient and risky. For a closed block of 10 million policies, a carrier might spend USD 10 per policy annually just to service the platform, at an ongoing cost of USD 100 Million a year. Compounding the challenge, legacy systems often depend on scarce and specialized talent, increasing operational risk.

While migrating to modern systems can resolve many of these issues, closed block transitions are uniquely complex. Legacy platforms are often decades old, highly customized and contain embedded product calculations. They were designed for minimal storage use, comprise millions of lines of outdated code and may span multiple systems acquired over time. The complexity of administering legacy platforms, coupled with the intricacy of L&A products, demands extensive planning, testing and validation to ensure a smooth and accurate transition .

Despite these challenges, L&A leaders understand that administering closed blocks alongside open blocks is key to dramatically lowering maintenance expenses and strengthening long-term sustainability.

Accelerating Modernization: AI, Automation and Analytics as Enablers

As traditional approaches such as incremental upgrades, outsourcing discrete functions or partial migrations prove insufficient, AI, automation and analytics technologies enable insurers to fast track the transition to modern platforms. By driving modernization across the lifecycle of closed-block administration, these technologies lay the foundation for next-gen operations while reducing the time and cost of migration by 20-40 percent.

Adopting an Integrated Modernization and Administration Model

When executed strategically, modernization initiatives can transform closed-block management from a cost center into a catalyst for sustained value creation, unleashing operational efficiency, driving regulatory compliance and generating actionable insights across the enterprise. AI enhances and augments human efforts, enabling teams to focus on higher-value work and critical decision-making. This, in turn, shortens migration timelines, reduces costs and improves accuracy and quality.

However, successful implementation of closed-block modernization requires a well-rounded approach that extends beyond technology. It is critical to incorporate the business context into the modernization initiative to avoid silos, bias or misalignment with organizational objectives. Cultural and change-management factors must also be considered.

Re-skilling teams, aligning leadership and managing workforce transitions are vital for successful adoption. Expanding the digital footprint of closed block administration also introduces increased governance, compliance and cybersecurity risks, which must be carefully managed.

As insurers navigate the dual pressures of maintaining legacy systems while meeting market and regulatory expectations, many are recognizing that the path forward relies on strategic collaboration.

Maximizing Impact Through Aligned Partnership

With the rise of disruptive technologies and innovative business models, life insurers have a unique opportunity to re-define how closed blocks are administered in partnership with a proven service provider. By integrating technology modernization, regulatory compliance and operational expertise into a cohesive framework, a seasoned digital-led domain partner brings distinct capabilities to the table.

1. Cost Efficiency and Variable Expense Management

In our experience, pooling operations across multiple clients delivers economies of scale and spreads technology and labor costs, reducing total operating expenses 45–65 percent over the life of the block. For insurers in runoff, this minimizes the drag of administrative overhead, converts fixed in-house costs into variable cost structures and enhances the return on capital.

2. Technology Modernization and Data Transformation

Cloud-based platforms support multiple product lines on a unified architecture, while Application Programming Interface (API) integrations enable seamless connectivity with insurers, re-insurers and investment systems. Data conversion and cleansing preserve historical accuracy during migration and automation streamlines manual processes such as claims, beneficiary verification and premium allocation. This helps provide real-time, accurate insights into policy performance, enhancing risk management.

5. Talent Continuity and Domain Expertise

Strategic collaborations allow insurers to focus their internal talent on high-impact initiatives by tapping into the partner’s experienced actuarial and operations staff and centers of excellence in claims, re-insurance and product conversions.

6. Scalability, Flexibility and Growth

The agile operational platforms of a provider enable private equity-backed consolidators and re-insurers to onboard additional closed blocks rapidly. With modular technology and experienced transition teams, new portfolios can be migrated in 6–12 months – far faster than traditional multi-year transitions. Such platforms also support portfolio acquisition assessments, including product complexity, conversion strategy and investment considerations. This scalability improves deal economics, accelerates acquisition velocity and eliminates the need to duplicate infrastructure.

8. Data-driven Intelligence

Modern platforms deliver actionable insights that enhance strategic decision-making. Advanced analytics provides visibility into mortality, persistency and claims trends, while predictive models improve reserve accuracy and lapse forecasting. Seamless integration with re-insurer and investment systems enables comprehensive portfolio oversight, empowering insurers and private equity-backed owners to make informed decisions on buyouts, re-insurance structures and capital optimization.

3. Regulatory Compliance and Operational Transparency

A strategic partner ensures closed block portfolios remain fully compliant and transparent. Services typically cover National Association of Insurance Commissioners (NAIC) and state filings, reserve and re-insurance reporting, data security and privacy regulations, Anti-Money Laundering (AML) / Know Your Customer (KYC) requirements, and audit traceability through standardized system logs and workflows. SOC 1 and SOC 2 Type II audits further assure regulators, re-insurers and private equity owners of operational control and governance.

4. Enhanced Policyholder Experience

By leveraging omni-channel communication, personalized messaging, automated servicing and digitized workflows, the partner improves response times, reduces errors and strengthens engagement. These capabilities help insurers maintain trust and satisfaction, lowering policyholder complaints and enhancing the customer experience as well as retention for products such as deferred annuities and long-term care riders.

7. Accelerated Migration Through AI-powered Automation

AI technologies help address three key challenges that arise in the closed block migration process: understanding the legacy business processes, preparing old data for new systems and checking that the new systems work correctly.

AI automates critical tasks such as legacy code analysis, reverse engineering, rule extraction, data profiling and mapping, while identifying gaps between old and new processing logic. Generative AI (Gen AI) further translates complex legacy code into plain language, bridging communication between IT and business teams. This capability streamlines every phase of migration, from understanding legacy processes to validating new systems, enabling faster, more efficient modernization.

A global insurer used an AI-enabled approach to analyze over 20,000 lines of code, map legacy data to a new system and generate clear, plain-language documentation – all in just over 2 weeks. The initiative achieved 60–90 percent automation across code assessment, reverse engineering, data mapping and documentation.

9. Outcome-based Partnership Model

An ideal partner operates under long-term, outcome-based contracts that align incentives with the insurer’s success. Service Level Agreements (SLA) are tied to measurable outcomes such as turnaround times, accuracy and customer satisfaction. In some cases, gain-sharing models ensure both parties benefit from cost savings and efficiency gains. For private equity sponsors, such arrangements provide predictable cost structures and stable cash flow visibility. This alignment fosters a shared commitment to maximizing policyholder value while minimizing administrative overhead.

Turning Legacy into Lasting Advantage

Looking ahead, the insurance industry presents a complex yet promising landscape, offering opportunities for growth, strategic investment and modernization.

The increasing involvement of global re-insurers and private equity-backed firms is re-shaping the closed block market, enabling more resilient, data-driven insurance models. Other major trends include greater use of AI-driven analytics to optimize underwriting and assets, growth in green finance and ESG-linked annuities, closer collaboration between regulators and global financial bodies, and continued consolidation among smaller private equity-backed insurers to achieve scale and efficiency.

Treating closed-block modernization as a strategic priority and partnering with a strategic partner positions insurers to seize these evolving market dynamics and drive sustained growth.

References

1. US Life Insurance & Annuity Closed Blocks Survey

2. Tech for Managing Closed Blocks | Insurance Thought Leadership