A number of factors determine an individual’s likely life expectancy: Past medical history, smoking, gender, age, and most importantly, socio-economic status. The link between the latter and life expectancy is well documented with a broad range of data to support it. A 2019 study by Drexel University, for example, found the average life expectancy for the lowest socio-economic groups in the US to be nine to 12 years below that of people the same age in the highest… 

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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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