The PRA has written to CROs of life insurers to set out its views on the potential risks that stem from using solvency-triggered termination rights clauses in bulk purchase annuity transactions. The letter follows a thematic review triggered by increasing demand for these clauses to be included in the terms of BPA buy-in transactions. The letter identifies risks the PRA has noted, and says that many firms are aware of these and take staps to manage them, but most firms need to do more to show they have considered the full range of risks involved.
The letter asks firms not only to review the findings against their policies, but also to tell their supervisor about any individual BPA transactions containing STTR clauses that they enter into in future.