Prudential Regulation Authority

UK regulator continues to raise concerns that current market practices could lead to systemic risk.

By Victoria Sander

The Prudential Regulation Authority (PRA) has issued another communication, the latest of a series related to reinsurance arrangements for the UK life insurance sector. Charlotte Gerken, Bank of England Executive Director, Insurance Supervision and chair of the PRA’s main executive committee, issued a letter on 15 June to Chief Risk Officers (CROs) communicating the PRA’s insights from its recent schematic review of funded reinsurance.

The PRA has identified reinsurance arrangements, which UK annuity providers use extensively, as an area of potential risk, including potential systemic risk due to increasing exposures to a limited number of longevity reinsurance providers to the sector. The latest missive focuses specifically on reinsurance under which the insurer transfers both asset and investment risk as well as the longevity risk to a particular reinsurer — a form of reinsurance increasingly popular for annuity providers writing large amounts of bulk pension annuity business.