The life settlement market, in its current form, is approximately 25 years old; in November 2000, the National Conference of Insurance Legislators (NCOIL) adopted its Life Settlements Model Act, which, whilst undergoing several adjustments since then, remains one of the foundational frameworks upon which the 43 US states that oversee the secondary life settlement market base their regulatory regimes.
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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