At its April 2026 meeting, the Bank of Japan kept the country’s interest rate unchanged at 0.75%, the fourth consecutive hold. While that figure may be lower than its Western counterparts, the increases that began in March 2024 have subsequently led to more activity in asset-intensive reinsurance (AIR) transactions by the country’s stock company life insurers as they look to minimise interest rate risk.
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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