When insurers set their longevity assumptions, it consists of two parts: the baseline assumption, which is essentially a current view of life expectancy today, and the projected future longevity assumption. Both of those have become more challenging to predict due to the Covid-19 pandemic, so the only certainty for insurers performing mortality analysis in 2023 is that it won’t be easy, according to Mark Sharkey, Global Head of Pension Strategy, at…
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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