Lapse rates – the percentage of in-force life insurance policies in the U.S. that insured individuals voluntarily stop paying premiums on, thus voiding the policy – for individuals in 2021 fell for the second consecutive year, according to the 2022 edition of the Life Insurer’s Fact Book, the American Council of Life Insurers’ (ACLI) annual report that provides statistics and information on trends in the life insurance industry in the U.S.

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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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