The US Department of Labor (DOL) has concluded its review of the regulatory framework for the pension risk transfer (PRT) market and decided not to take any action at the moment, but it has left the door open for future rule changes. At the end of June, the DOL’s Employee Benefits Security Administration (EBSA) issued a report to Congress on the thirty year old…
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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