Many investors in the life settlements asset class do not fully grasp the complexities underlying the asset before making the decision to invest in it. On its face, a life settlement appears relatively simple – it is effectively a negative carry, discounted cash flow asset that matures at some future point – not dissimilar to a zero-coupon bond. A closer look, however, reveals that life settlements are more complicated to acquire and manage than other comparable discounted cash flow assets. Hence, it is critical that careful diligence be undertaken before an investor…

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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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