The trend in reverse mortgage origination in the US in the past decade or so has been down, down, down. According to the National Reverse Mortgage Lenders Association, fiscal year 2024 – which, for the Department of Housing and Urban Development (HUD), ended on 30th September last year – delivered just 26,521 HECM mortgages, the lowest number since 2003 (18,097).
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.Â
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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