It is now a year since UK regulator the Financial Conduct Authority (FCA) brought in its new Consumer Duty (Duty), a regulation requiring all financial services firms to âact to deliver good outcomes for retail customersâ for all new product offerings. This month, the FCA closes the loop with the implementation of the duty for closed product offerings.
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 âDear CROâ letter to heads of risk at UK life insurers.
The letter outlined the regulatorâs two main concerns from a sectoral review which it had carried out.
âOne 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 firmsâ preferred portfolio,â the PRA letter said.
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