On August 25, 2022, the Delaware Supreme Court adopted a fault-based analysis framed under the Restatement (Second) of Contracts (“Restatement”) to determine if life insurance policy premiums should be returned in a case where the policy is found to be void ab initio for lack of insurable interest. Geronta Funding v. Brighthouse Life Insurance Company, No. 380, 2021 (D. Del. 2022) (“Seck”). In doing so, the Court effectively overruled a number of federal Delaware…
Insurers are favouring funded re as it helps firms manage the market and longevity risks associated with writing bulk purchase annuity (BPA) business by reducing capital charges and therefore making PRT deals more competitive.
Unsurprisingly, given its growth and potential for capital optimisation, UK regulators have been carefully watching the increased use of funded re. In June 2023, the Prudential Regulatory Authority (PRA) sent a “Dear CRO’ letter to heads of risk at UK life insurers.
The letter outlined the regulator’s two main concerns from a sectoral review which it had carried out.
“One of the key risks arising in funded re is that firms recapture sub-optimal portfolios with depressed values and with limited ability to be transformed effectively to the firms’ preferred portfolio,” the PRA letter said.
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