Funded reinsurance transactions involving UK life insurers will face enhanced regulatory requirements under new proposals revealed by the UK’s watchdog, the Prudential Regulation Authority (PRA), in a consultation paper.
Under plans in a consultation published recently, funded reinsurance – or funded re, which involves UK life insurers paying a large up-front premium to a reinsurer in return for future payments – would be treated more like other investments that UK life insurers hold, ending a regulatory inconsistency, said the PRA.
As a result, UK life insurers using funded reinsurance will hold capital which better reflects the risks from the default of their reinsurance counterparty, particularly where the reinsurer has a lower credit rating or where they hold riskier collateral.
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