As we enter the 4th year of the COVID-19 pandemic and as the number of infected survivors grows ever larger, attention is increasingly turning to the risks of long COVID and reinfection. Most patients totally recover from acute COVID within 3 to 4 weeks after onset of infection. Long COVID has been reported in 10% to 30% of those with COVID-19,1 and in some studies, even more.
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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