The Traded Endowment Policy Market in the United Kingdom is slowly coming to an end. Changes to taxation of these policies means that investors shied away and coupled with insurance companies writing less of these policies over time, means that what was once a robust secondary life market in the U.K. is no more. Life Risk News spoke to Roger Lawrence, Managing Director of WL Consulting, to learn more about the industry’s demise.
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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