Whilst 2023 is not quite in the books just yet, it has been another busy year in the UK pension risk transfer (PRT) market. In October, consulting firm Barnett Waddingham published a blog post suggesting that this year is set to break records in terms of both the number and volume of deals. Those in the UK licking their lips at the prospect for 2024 bringing ever more deals might want to rein in their excitement, as the regulator is paying close attention.
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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