The European Insurance and Occupational Pensions Authority (EIOPA) has turned its head towards the almost zeitgeist topic of ‘private equity’ ownership of life insurers. On 3rd February, it published ‘Consultation on supervisory statement on the authorisation and ongoing supervision of (re-)insurance undertakings related to private equity’, a new consultation paper that is “seeking to address the risks and ensure high-quality and convergent supervision of (re-)insurance undertakings related to private equity firms, considering their specific nature and risks.”
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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