The life ILS market is a relationship and network-driven one, which, when compared to other alternative asset classes – including its close cousin, the life settlement market – is small and heavily populated by actuaries, which are in short supply generally. So, for our poll in February 2023, we wanted to ask Life Risk News readers why they think the space isn’t larger. Three choices were offered; not enough capacity to make it worthwhile, not enough expertise…
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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