As we approach the mid-point of 2023, the BPA market continues to be very active, and there have been a couple of key regulatory updates in the last week or so. Here's a round-up of the key headlines from the last couple of weeks. As always, please do reach out if there's anything below that you'd like to discuss.
There have been a number of team announcements across insurers over recent weeks including:
- Just Group announced a number of new hires, including three strategic new hires for their Defined Benefit de-risking business. Tom Bulpitt has been announced as the new Director of Pricing and Reinsurance. Tom previously worked at Athora and primarily has a background in M&A and deploying and optimising capital. Richard Wood joins from Phoenix Group where he led much of their BPA reinsurance work, and will lead Just’s reinsurance execution and structuring. Andy Fryer joins as Head of Proposition Development having previously worked at Aon where he led a team of pension scheme consulting actuaries. Additionally, Dan Ryan has been appointed as Director of Demographic Risk at Just.?Dan led global multi-disciplinary teams at Willis Towers Watson and Swiss Re. Dan was also a founding member of the COVID-19 Actuaries Response Group.
- Aviva have appointed James Hillman as Chief Risk Officer, who will take on the role later this year. James is currently Chief Financial Officer of Scottish Widows, and Finance Director of Lloyds Banking Group’s Insurance, Pensions and Investments Division. With over 20 years of experience working in regulated roles, James also previously worked at EY as a partner in the European Insurance Risk and Actuarial practice.
- Legal & General Group Plc have appointed António Sim?es as Group Chief Executive Officer. He joins from Banco Santander and will take up the role on 1 January 2023. He will succeed Sir Nigel Wilson as Group CEO who is planning to retire.
- Graham Butcher has been appointed as Chief Financial Officer at Rothesay from 1 October 2023. Graham is currently Rothesay’s Head of Strategy and Chief Underwriting Officer and is one of the longest serving members of their management team.
- Canada Life have announced Tom Evans to Managing Director of Retirement. Tom is currently working as interim Managing Director and has been key in bringing together Individual Annuity and Home Finance into one Retirement business and therefore will continue in the role on a permanent basis.
- Clara Pensions, the pensions consolidator, have hired Richard Zugic as chief financial and operating officer, replacing their existing COO, Kim Toker, and CFO, Andy McKinnon, who are both leaving the business at the end of the month.
Since my last update, there have a been a few further publicly announced transactions which have taken place
PIC have completed the UK’s largest urban regeneration project by completing the topping out of the construction of 500 sustainable waterfront apartments at Miller’s Quay. The development cost ￡130m and includes 100 affordable homes, which has been funded by PIC. Following completion, Wirral Council will lease the building for 50 years providing annual rent which increases linked to inflation. These cashflows will help to pay the pensions of PIC’s policyholders over the next 50 years.
L&G completed their first Build to Rent investment in Northern Ireland with this being the largest real estate investment in Belfast for two decades. L&G highlighted the regions rising demand and the need for high-quality residential property.
The PRA have published a “Dear CRO” letter summarising findings of their preliminary thematic review into Funded Reinsurance. In summary the PRA has raised a number of material concerns with funded reinsurance as it is being used in the bulk annuity market, including issues with collateral valuation and risk limits. We expect firms to be re-evaluating their risk management practices here and potentially changing how they use funded reinsurance going forward.
HM Treasury has published draft regulations to reform Solvency II, which is the first time we have seen a legal text of reinsurance reform. The draft rules confirm that:
- The risk margin changes will be effective from the end of 2023, and will see the calculation updated to use a 4% cost of capital and to add a “lambda” taper factor of 90% for life insurance business, subject to a floor of 25%
- Wording on asset cash flows for MA eligibility has been updated to state that cash flows must be fixed except “where the risks of the quality of matching are not material” and “where only a limited proportion of the portfolio as determined by the PRA is affected”. This would appear to pave the way for “highly predictable” cash flow assets to be included in the portfolio
- The rules around revoking the MA if a breach isn’t resolved within 2 months has been softened to allow more flexibility to the PRA in dealing with breaches (i.e. the PRA may or may not revoke and can decide to impose a lower MA benefit for a time period of its choosing)
- The calculation of the fundamental spread has had several changes which appear to be setting up firms to move away from data provided by the regulator and able/required to use a wider range of data in setting the FS. It is also specified that “at the option of the insurance or reinsurance undertaking” the fundamental spread may be increased to ensure it covers all retained risks.
- The PRA is given several powers to make rules, including the conditions under which a firm is eligibkle to apply the MA and to determine the definition of “material” when considering assets with highly predictable cash flows
The CMI (part of the IFoA) has published the latest of its mortality projection models (CMI_2022) which are the industry standard model used in calibrating future life expectancies for BPA scheme members. As expected, the “standard calibration” of the model will see life expectancies reduce by c. 6-7 months compared to the previous model. Insurers will typically use a bespoke calibration of the model, however the standard calibration is usually a good guide to the direction of life expectancies used by providers in the market
Senior Manager & BPA Proposition Lead
1 年Nice one Chris!
Thank you Chris
Helping businesses serving the silver economy to find valuable new longevity insights
1 年Thanks Chris. A great round-up of developments, as ever.
Pension Risk Transfer
1 年Really interesting, thanks Chris!