The most recent Continuous Mortality Investigation (CMI) model, CMI_2024, published in the middle of last year, indicated that life expectancy among younger, working-age people in England and Wales had declined, while that of retirement age people had increased. Life expectancy among the over 65s rose by three months for men and by two weeks for women but shortened by about five months for men and women aged around 35.
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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