The UK government’s plan to reform the country’s insurance regulatory regime took its latest step on 28th September with the publication of the Bank of England Prudential Regulatory Authority’s (PRA) Consultation Paper regarding the planned changes to matching adjustment (MA) portfolios. One of the key points that British politicians are trying to push here is that they want the insurance sector to be able to invest in a wider range of assets than they currently…
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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