Bank of England scrutinises risk transfers in insurance sector

By Huw Jones

LONDON (Reuters) – The Bank of England (BoE) said on Tuesday it would increase scrutiny of risks such as bulk purchase annuities, or insurers taking over company defined benefit pension schemes, a growth area in the sector.

Gareth Truran, the BoE’s executive director for insurance, said bulk purchase annuities had changed the dynamics of the insurance market, which could bring “particular risk management challenges” that would need a “high level of scrutiny”.

Insurers have been using so-called funded reinsurance arrangements in large volumes to support their bulk purchase annuity business, which some market observers predict to be around 600 billion pounds ($767 billion) over the next decade.

“Given the risks we see, we will maintain a high level of scrutiny of UK insurers’ use of these transactions, at an individual firm level and across the sector,” Truran told an industry event.

The BoE is working closely with other regulators internationally on these issues, he said.

“We will monitor further market developments, and we stand ready to consider further measures if required to mitigate the risks to UK insurers or their policyholders,” Truran said.

He also confirmed that Britain’s top insurers would face their next stress test in 2025 when, for the first time, the BoE will publish company-by-company results for life insurers. To date, the central bank has published aggregate results.

The BoE will publish details of the test for life insurers on Wednesday and for general insurers next week, he said.

($1 = 0.7820 pounds)

(Reporting by Huw Jones; Editing by Jon Boyle and Mark Potter)


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