FIN.

PRA finalises expectations on funded reinsurance

Following its consultation, the PRA has finalised its expectations in respect of insurers entering into or holding funded reinsurance (FundedRe) arrangements as cedants (SS5/24). The PRA has also issued a Dear CEO letter to life insurers explaining that the SS is effectively immediately. If firms make use of FundedRe, or are considering doing so, the PRA expects their boards to have considered their firms’ alignment with the SS as soon as practicable.

By 31 October 2024, firms must provide their PRA supervisor with:

  1. Self Assessment analysis: an assessment of the firm’s current risk management practices against all the expectations set out in SS5/24. This should include a justification if there are areas where the firm has not aligned fully with the expectations but where its implemented framework is considered to achieve the same outcome;
  2. Limits: a summary table of the firm’s board approved FundedRe limits for individual counterparties, for correlated counterparties and the firm’s aggregate limit;
  3. Remediation activities: a summary, including a timeline, of the activities that the firm has carried out and intends to carry out to meet the expectations set out in SS5/24;
  4. Level of confidence in the modelling: an overview of the perceived level of confidence achieved in the firm’s internal model output, at a transaction level, and how this has been used to shape the firm’s FundedRe investment limits; and
  5. Risk appetite: an overview of what steps a firm’s board has taken to limit its risk appetite for the amount and complexity of FundedRe transactions over the coming months, where gaps exist against the expectations set out in SS5/24.

The PRA has also published the consultation feedback in PS13/24.

Emma Radmore