The ‘Peak 65’ zone that began in 2024 and runs through 2027 will see more than 4 million Americans turn 65 – over 11,000 every day. Some of those people will need long-term care, which, according to the Milliman Long Term Care Index, will cost the average American senior $135,000 from age 65 through the remainder of their lives. In some states, such as New York and California, this figure increases to $266,000.
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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