How to Link FundedRe Reform to the Growth Agenda

Bank of England realised in 2018 Solvency II was driving offshore reinsurance.  Offshore funded reinsurance was the follow-on step and can be seen to cut across PRA’s primary and secondary objectives.  Further Government policy correctives beyond those set out in the consultation are needed to support the growth agenda.

Letter to Treasury Select Committee from Sam Woods CEO PRA

​Vicky White speech to Bank of America CEO conference, September 2025: 

“Therefore, not only is there an argument that Funded Re may be posing risks to our primary objectives because of a quirk in regulatory treatments, but it is also possibly impacting on our secondary competitiveness and growth objective (SCGO), skewing firms’ investment incentives.” 

Proposals to Benefit the Growth Agenda

1.  Growth

​​More UK investment out of the close to £1.5 trillion backing DB pensions will bring massive economic and stakeholder benefits.  

Issues

• Regulatory initiatives under Solvency II and Solvency UK around the Matching Adjustment and Risk Margin have increased insurers’ profits but have not been linked to greater investment in the UK economy.
• Current incentives do not encourage life insurers to allocate assets in ways that support the Government’s growth agenda.
• The PRA may underestimate the commercial value that its regulatory framework and perceived Government backing provide to insurers.
• The CP8/26 proposals strengthen the framework for future funded reinsurance.  Around £40 billion of pension liabilities has already been transferred under arrangements with lower capital backing than the PRA now considers appropriate.

Proposals

• Recognise prudential regulation and the PRA’s secondary objective of supporting growth can be better aligned when information flows improve between regulators.
• Create stronger incentives for life insurers to invest in UK productive assets.  Add UK into Solvency UK.
• Encourage a new consensus between Government, regulators and industry on insurers’ contribution to economic growth making it an option alongside run-on through value sharing.
• Consider linking the regulatory benefits insurers receive for free to set asset allocation that supports UK growth.  Or make charges.

2.  Regulatory Coordination

Coordination avoids regulatory capture seen with the development of offshore (funded) reinsurance.

Issues

• There is little structure and limited evidence of systematic coordination across the relevant regulatory bodies.

Proposals

• Ensure the relevant regulators and Government departments are fully informed of the PRA’s approach and the lessons from CP8/26.  Ensure that parties realise longevity reinsurance growth was an “unintended consequence” of Solvency II.
• Re-establish the Joint Forum on Actuarial Regulation (JFAR) to facilitate cross-regulatory discussion.
• Increase bilateral engagement between the PRA and peer regulators.  Look in particular at the record of the longevity risk transfer market.+
• Seek structured feedback from other regulators on key policy and supervisory issues arising from funded reinsurance.

3.  Informed Decision Making

Data from scrutinised actuarial work on transactions will bring better Informed Decisions.

Issues

• Limited independent scrutiny of actuarial work makes effective supervision more difficult.
• There is insufficient actuarial analysis of transactions at a sector-wide level to inform regulatory judgement.
• Better evidence and information sharing would support more robust regulatory decisions.

Proposals

• Increase scrutiny of actuarial work underpinning funded reinsurance transactions.  TAS300V2.1 to be a benchmark.  FRC to launch a thematic review resourced on a cross-regulator basis.
• Develop more comprehensive, sector-wide, actuarial and accounting analysis to support supervision.  FRC to take the role.
• Encourage regulators to use shared evidence and peer challenge when assessing new market practices.
• Improve the information base available to regulators through JFAR / bilateral discussions so that policy decisions are informed by a fuller understanding of market developments.

Add UK to Solvency UK : Reset Asset Allocations


The Economic Growth Opportunity : Add UK into Solvency UK and Run On 4 Goode

• Investment is needed to generate growth in the UK economy.
• Close to £1.5 trillion is already invested in assets backing DB liabilities.  Significantly more of it can be invested in UK.  HMT should introduce incentives to ensure that happens.  
• Solvency II and Solvency UK are positive steps.  But they have not benefitted the UK economy as they should have.  The astute, assertive – increasingly North American owned – life insurers have taken on £350 billion and expect Pension Risk Transfers to continue at over £50 billion a year for a decade.  They invest largely abroad.  They trade off PRA as being a tough regulator and FSCS as providing “absolute certainty” pensions will be paid.  It is central to their sales pitch.  That convinces trustees to hand over the assets to them.  Government support is currently largely free to life insurers.  Link it to pro UK asset allocation.
• Unintended consequences of PRA action may be behind the offshore growth.  Regulatory capture may be behind the lack of remedial action.
• Corporate sponsors are behind schemes accounting for £1.15 trillion in assets.  Most Boards are indifferent to a legacy, non core issue.  But that makes them open minded to Government initiatives.
• This background creates a terrific opportunity for Government.  Regulatory coordination will bring about better “informed decisions” by trustees and sponsors.
• Funded reinsurance cuts across PRA’s primary security and secondary growth objectives.  Funded reinsurance is an extension of longevity reinsurance which has the same offshore investment characteristics.
• Government can take incisive straight forward steps which will change strategies and behaviour for life insurers and DB schemes trustees.  The consequence will be more money will be retained in long dated UK gilts and invested in UK productive assets.  The confidence generated will be material immediately to UK capital markets.

Action:

• Charge life insurers for PRA regulatory support and for arranging FSCS unless they put UK into Solvency UK.  The charge is a % of all relevant assets held.  Where life insurers, and reinsurers where relevant, certify they holds set minima levels for holdings of UK gilts and UK productive assets against the liabilities, the charge can be waived.  That’s why it’s called “Solvency UK”
• For DB schemes holding minimum allocation to UK gilts and UK productive assets and with a long term strategy to Run On 4 Good:

            – PPF 10% reduction to deferred pensions waived if schemes join PPF.
           – Tax is deducted by DB schemes on surpluses paid to corporates sponsors.  Sponsor can deduct the amount as a credit / prepayment against corporate tax it is paying.  The sum is limited to the amount paid for DC and CDC contributions in the year.  The credit means the corporate’s current year pensions have no net cost.

• FRC cooperation with relevant regulators undertakes a thematic review of TAS300V2.1 in practice and of corporate and trustee disclosures of transactions.

The impact is:

• UK long dated gilts and UK productive asset have more long term buyers with demand and liquidity benefits.  Life insurers have reason to maintain higher UK investment.
• Life insurers may adjust to a pro UK portfolio to avoid the charges.  Demand immediately increases.
• Corporates have a new earnings benefit to phased use of pension surpluses.
• Members have added security.  They can look for value sharing arrangements from life insurers to compete with run-on strategies.  They can target Sir Roy Goode’s expectation when inflation caps were introduced that the real value of pensions would be maintained through discretion payments.
• HMT have higher net tax receipts.  Corporate surplus payments match against allowances provided.  Tax receipts on other corporate (pension surplus payments) and employee surplus payments (as income tax) arise.  Where life insurers are non compliant there is an income stream for HMRC.

Substantial immediate investment increases in UK as regulatory changes and coordination pays off

C-Suite pointed out over 2 years that one question put by members to trustees will have the major impact of collapsing the case for a buyout when compared with run-on.

“Have you asked the actuary for a TAS300V2.1 report?”

The maths and governance behind risk-reward comparisons then take over.  Strategies change.

To clarify the position, trustees themselves might consider asking their advisors:

• Does a buy-in or buyout have a Government guarantee to support the “complete security / certainty” sales pitch?
• Will making discretionary payments to inflation protect the real value (at least) of a pension be possible by agreement?
• Why give up on discretion; sponsor; ring-fenced assets and PPF cover if there is no Government guarantee for a buyout?

“I had; I have; I will have” provides a summary of the endgame process.

Being activist not passive will pay-off for members.

Set new standards.