Bank of England could move to manage rush into longevity reinsurance

Longevity reinsurance may be running amok in the UK, with growth potentially outpacing prudence and policyholder protection, the Bank of England warned in a missive to the nation's insurers.

"We are paying close attention to whether the continued high level of longevity reinsurance and the emergence of the more complex 'funded reinsurance’ in the UK life market reduce the protection UK policyholders should have," The Bank of England's executive director for insurance supervision, Charlotte Gerken, told the industry's top officials.

The top risks: the race to reinsure books may have put too much business in too small a coterie of offshore names, creating what Gerken terms offshored counterparty concentration risk. Such concentration risks may be arising for individual cedants as for the industry as a whole.

The Bank of England will consider "policy action on reinsurance structures and limits" amongst possible means to mitigate systemic risks to policyholders, Gerken wrote.

Insurers, for their part, are asked to maintain strict adherence to the UK's Prudent Person Principle (PPP) for reinsurance risks.

"Insurers need to consider the reinsurer’s resilience over the whole duration of the exposures, as well as the potential impact from a mass recapture event where large concentrations to a small number of counterparties exist."

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.