Ireland’s status as a popular European domicile for life settlement funds is rooted in the country’s double tax treaty with the US which allows Irish investment vehicles, such as Section 110 companies and Qualifying Investor AIFs (QIAIFs), to receive US life settlement payouts free from US withholding tax (provided they meet the treaty’s limitation on benefits provisions). Tax, after all, has a significant impact on the net returns of any investment fund, alternative or not.
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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