In the 43 states of the US that have a regulatory infrastructure for the life settlement secondary market, a life settlement provider is involved in every transaction. The reason is because one of the two model acts – the NAIC’s Viatical Settlements Model Act and the NCOIL’s Life Settlements Model Act – used by states that regulate the space require their presence. Whether the life insurance policy is sourced via the direct-to-consumer channel, or the intermediated channel, the provider is an ever-present market participant.
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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