The US pension risk transfer (PRT) market saw its biggest year in 2022, with AON recording a total of 568 transactions, worth $52bn — a 28% rise on the previous year and a record for the sector. This heightened level of activity has continued into 2023 with Legal & General Retirement America’s (LGRA) Q1 2023 PRT Monitor reporting around $6bn worth of deals in…

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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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