On 15th June the Bank of England's Insurance Supervisor published an open letter to the industry, in which it cited a number of observations about the growth in offshore reinsurance arrangements by the UK pensions industry.  As the prayer says, we 'see as through a lens', and there have been some notably cautious interpretations in the financial media about its implications for reinsurers.  But a more bullish (to annuity providers at least) interpretation of Charlotte Gerken's letter could also be made:

Specifically, the letter states: "We see limited risks to the PRA’s objectives from the use of FundedRe within a diversified asset strategy, as a means to gain (indirect) exposure to asset classes beyond the origination capacity of the UK industry," followed with a caveat, "The systematic use of FundedRe to meet the increase in demand for bulk transfer of defined benefit pension liabilities" will bring with it, "concentrated exposure to correlated, credit-focussed reinsurers".  In other words, wholesale structures which aim simply to transfer large books of business might be discouraged, but addressing specific risks is no bad thing for the de-risking industry. 

Elsewhere, there's a promise that the capital needs and wider market dynamics of the pensions, corporate sponsor and pensions de-risking markets will be taken into account ahead of the introduction of any new rules for funded reinsurance, together with more specific thoughts around achieving full risk transfer, avoiding correlation risk and ensuring recapture safeguards.  Collateral quality will be paramount, and there's even a suggestion of the similarities involved in this form of risk transfer to the Secured Funding trades which life insurers embraced in the years immediately following the Financial Crisis.  Indeed, any reinsurance business which happens to have UK Matching Adjustment-admissable assets at its disposal might take heart from concerns expressed about potentially foregoing "UK productive investment".

Effective risk transfer, attracting new capital to the UK's Retirement industry, asset diversification and facilitating inward investment are some of the themes which reflect positively upon the development of specialised (rather than industrialised) life risk transfer for the UK.  Hymans Robertson's Mike Abramson and Lara Desay add their observations...