UK Chancellor of the Exchequer Rachel Reeves’ announcement at the end of January that she wants to unshackle billions of pounds locked in defined benefit (DB) pension fund surpluses has raised questions about how such a move might impact the country’s bulk purchase annuity market. Reeves told a meeting of City chiefs that by releasing the money “trapped” in DB pensions, employers could allocate it to potentially more lucrative strategies outside of their scheme investment remits.
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.
Post a comment
Related Posts
Life Settlement Secondary Market Returns to Growth but Plenty of Untapped Potential Still Remains
The total number of life insurance policies purchased in the life settlement industry’s secondary market…
Too Early To Judge Impact of New Funded Reinsurance Rules on UK Pension Risk Transfer Market
New Prudential Regulation Authority consultation paper spells out the new capital charge for funded reinsurance…
Proprietary Reverse Mortgage Market Growth a Welcome Development for MBS Investors
Origination values in the proprietary reverse mortgage market in the US have exceeded the agency-backed…
As PRT Market Grows, Service Providers Look for Ways to Keep Up
Business may be brisk in the UK pension risk transfer market, but human capital constraints…
