A recent report from Fitch Ratings says that the firm expects continued life insurance consolidation activity due to a steady transaction pipeline, insurers’ appetite to deploy capital into acquisitions, and the increasing use of innovative deal structures. Greg Winterton caught up with Dr. Christoph Schmitt, Director, Insurance at Fitch Ratings to take a closer look at the German life insurance consolidation market specifically.
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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