A few months ago, Life Risk News published my commentary article regarding life expectancy (LE) apocrypha. Given the positive feedback I received, I decided to write a follow-up, focusing on industry suppositions about actual to expected analysis (A-to-E), no stranger to controversy over the years. Although many philosophies and theories about LEs have been proffered by life expectancy providers, virtually every type of participant in the life settlement market has contributed to the apocrypha surrounding actual to expected analysis.
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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