Most of the activity in the life settlements market today consists of tertiary blocks of business re-trading into increasingly stronger hands at increasingly fairer prices. Fresh capital continues to flow in and, since tertiary brings no new supply, secondary origination ought to be the natural home for that money. For some reason the secondary market falls short. Consumer education and marketing costs are often cited as major headwinds to growth in the secondary market…
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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