The life settlement industry regularly touts the lack of correlation to public equity and liquid fixed income markets and diversification benefits as two of the reasons why institutional, end investors should consider allocating capital to the asset class. Historically, however, that view has not had the benefit of being data-backed at the aggregate level – until now. Unlocking Value: Insights into Life Settlements Investment Trends is a new report from industry group the European Life Settlement Association (ELSA) and insurance asset management firm Conning.
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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