Blockchain technology is all the rage, especially in the start-up and venture capital world, it’s apparent industry-agnostic applicability leading to billions of dollars of investment. In the life insurance and life settlement world, proponents argue that it can put all of the details about a life insurance policy in one place, eliminating the vast amounts of paperwork, both physical and digital, that prevail in the market today.
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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