US life insurers are increasingly allocating to securitised credit assets, according to a recent article from L&G – Asset Management, America. The firm cites regulatory capital rules as a ‘meaningful driver’ because senior tranches of many securitised asset pools benefit from higher designations under the National Association of Insurance Commissioners (NAIC) risk‑based capital framework, which in turn means they carry a relatively lower capital charge.
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.
Related Posts
Optimism for Stronger Second Half in the Life Settlement Tertiary Market
General pace of activity picking up after slow first quarter of 2026.
Passage of UK Pension Schemes Act Seen Boosting Size of DB Superfund Market
Pension Schemes Act will codify the operating rules and expectations of superfunds in the UK’s…
UK Equity Release Market Waits on Fourth Quarter for Potentially Market-Altering Change
UK regulator the Financial Conduct Authority is currently conducting a later life lending market study…
Organ Transplant Improvements Test Life Expectancy Assessment Models
Continued improvements in organ transplant techniques and procedures are increasing the success rate and post-operation…
