The past 12 months have seen significant developments that are likely to shape mortality models among defined benefit pensions scheme managers and sponsors alike, and possibly even have an impact on the pricing of de-risking deals. The updated Continuous Mortality Investigation (CMI) model (CMI_2024) showed an improvement in longevity overall in the year to January but also revealed a bifurcation of life expectancies between young people of working age and those over 65 in England and Wales.
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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