Until the end of the 20th century, cancer care was rudimentary. Late detection, limited treatments focused on surgery, radiation and chemotherapy, which in those days was barely tolerated. Survival was poor. By the 1950s, only 25% of diagnosed individuals survived five years. In the period 1975–77, the all-cancer 5-year relative survival in the U.S. hovered near 49%.
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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