Unlock the Editor’s Digest for free: Insights from the FT Editor and more on funded reinsurance deals
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Are you looking for a curated selection of the top stories handpicked by the Editor of the Financial Times? Look no further than the Editor’s Digest, a weekly newsletter where Roula Khalaf selects her favorite stories for you to enjoy.
In the latest edition of the Editor’s Digest, one of the key stories highlighted is the significant increase in assets offloaded by big UK life insurers to global reinsurers. This practice, known as funded reinsurance, has been on the rise, with insurers passing on a portion of pension assets and liabilities to reinsurers overseas.
According to information provided by insurers to the Financial Times, at least £6bn worth of funded reinsurance deals were conducted last year, a substantial increase from the previous year. Leading the pack was Legal & General, with £3.2bn in deals, followed by Phoenix Group and Pension Insurance Corporation.
However, this surge in funded reinsurance deals has not gone unnoticed by regulators. The Bank of England has warned of significant risks to the sector and is consulting on tighter rules. Pension trustees have also raised concerns about the lack of transparency in these arrangements and the potential implications for savers’ benefits if they were to fail.
Despite the scrutiny, insurers have defended funded reinsurance as a risk-sharing mechanism. They emphasize the importance of working with carefully selected reinsurers and maintaining strong collateralization arrangements to mitigate risks.
As the industry continues to evolve, it is crucial for insurers to provide better and more consistent disclosure on their use of funded reinsurance. Transparency and accountability are key to building trust with stakeholders and ensuring the long-term sustainability of these arrangements.
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