Investors in the senior living market in the US are typically more active in assisted living facilities, as opposed to a nursing home. The two are very different stateside and provide different levels of care. But regardless, for senior living investors, the risk associated with investing in the space has typically been a real estate one – vacancy rates. Every unoccupied bedroom is missing rental income that could be going into the bank account of the investor.
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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