If you ask a life settlement broker if they think that secondary market activity was higher in 2022 than in 2021, you’ll likely receive an enthusiastic ‘yes’. Industry body the Life Insurance Settlement Association has published their annual data now, and trade magazine The Life Settlement Report, part of The Deal, also collects its own data direct from the states, so shortly, empirical evidence will be available to either support or contradict those views.
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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