The 2015 Paris Agreement targeted a long-term goal to keep the rise in global surface temperature to below 2 °C above pre-industrial levels – but early signs are of progress on achieving these targets are not great. Scientists at the EU’s Copernicus climate monitoring service reported at the start of September that the Northern Hemisphere summer was the hottest since records began, beating a record only set in 2023.
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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