Participants in the UK equity release market – insurance companies, advisers and consultants – generally agree that the industry has something of an awareness challenge. Despite industry efforts in terms of media advertising, many in the over-55 cohort – those homeowners who can take out an equity release mortgage – either don’t know that the option exists, or might have come across it in passing, but haven’t taken the time to explore the nuances of the option.
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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