PRA speaks on developments in bulk purchase annuities sector

Lisa Leaman (Head of Division, London Markets at the PRA) has delivered a speech on developments in the bulk purchase annuities (BPA) sector. Highlights include:

  • Solvency II reforms to the matching adjustment (MA) – further to its 2023 consultation, the PRA is on track to publish its policy statement and final rules on the reforms in early June, with these due to be implemented by 30 June 2024. The PRA recognises that implementation by this date may be challenging for some firms and so the policy statement will confirm the date(s) on which new requirements will take effect, and whether early adoption will be possible on a voluntary basis. Firms will also not be required to reapply for permission to apply the MA under the Solvency UK regime where permission has already been granted under Solvency II.
  • Sandboxes – these are new proposals which the PRA has not considered as part of its consultation on MA reforms. The PRA is open to new ideas on sandboxes but one proposed model is to use a sandbox to obtain MA benefit for assets that a firm considers to be MA eligible, but for which the streamlined application process might be too slow or too costly given the size of the exposure. Another suggestion is exploring future eligibility for assets that are currently ineligible for the MA but which the firm still considers suitable to back annuity liabilities. The PRA has convened a new Subject Expert Group with a panel of insurers to explore industry suggestions on the use of sandboxes.
  • Stress testing – the PRA will publish an approach document and guidance on the 2025 Life Insurance Stress Test in June. This stress test will include new exploratory features, including a sector-wide stress of firms’ use of funded reinsurance. The PRA is considering the feedback received on its November 2023 consultation on funded reinsurance and intends to publish its final policy in July 2024.

The PRA hopes that these changes will have a positive impact on the sector, through growth, greater transparency and enhanced accountability.

Lucy Hadrill