Four years ago last month, Canadian politician Rudy Cuzzetto, Member of Provincial Parliament for Mississauga-Lakeshore in Ontario, filed Bill 219, or the Life Settlements and Loans Act, 2020, which was aimed at amending section 115 of the Ontario Insurance Act to allow trafficking in life insurance. The bill got a second reading but that, unfortunately for investors that might be interested in such an asset, is as far as it went.
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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