For life settlement investors, potential increases in the Cost of Insurance (COI) component of a life insurance policy represents a risk that needs to be considered when valuing a policy for a potential purchase. That risk is very much on the radar of fund managers in the space. In recent years, COI increases from life insurance companies have been followed by lawsuits against the carriers; these lawsuits…
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.
Post a comment
Related Posts
Regulatory Progress Has Boosted Life Settlements, Yet Education Remains Key to Growth
Changes to the NCOIL life settlement model act in the past 25 years have been…
One Year On, UK Pension Risk Transfer Market Largely Unaffected by DB Code of Practice
A year after the UK Pensions Regulator’s code of practice on funding for defined benefit…
Is It Time to Rate Life ILS Structures?
The subject of whether life insurance-linked securities (life ILS) structures should be rated or not…
Are Bulk Purchase Annuity Buy-Ins Set to Feature More Often in the US Pension Risk Transfer Market?
Traditionally, PRT transactions in the US are of the buy-out variety, a trend driven by…
