The Pension Risk Transfer (PRT) space in the United Kingdom has been on a growth trajectory for much of the past decade. Life Risk News’ Greg Winterton spoke to Chris Anderson, Head of Bulk Purchase Annuity Consulting at EY; Shelly Beard, Managing Director at WTW; and James Mullins, Partner, Head of Risk Transfer Solutions at Hymans Robertson, to get their thoughts on the outlook – and some of the potential challenges – for the world’s largest PRT market.
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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