Prudent to wait for new pricing and security framework ahead of risk transfers
We need to talk about Solvency II.
A “once in a generation opportunity” says the CEO of the Prudential Regulatory Authority. “A once in a lifetime opportunity” says the Association of British Insurers. The Financial Times writes editorials repeatedly about it. Yet actuarial consultants carry on regardless with derisking deals and ignore it.
It can affect the pricing and security of buyins and buyouts which pension trustees are told endlessly provides their “Gold Standard”. Surely with the shakeup in the insurance industry just ahead (and with 2023 longevity tables set to cut liabilities) it is in the best interests of members to take a “time out” in the endgame. No need for speculation. Wait and see. Be prudent.
And anyway, how many carats does the Gold Standard have? The PRA highlights that risks of insurance company failure to members’ pensions should not be “underestimated” and that industry practices circumventing Solvency rules should not be “baked in”. It hopes that a substantial release of capital can be achieved while protecting policy holders “adequately”.
Right now why ditch your sponsor / strong PPF back up package for a modest life insurer cover upgrade? The life insurer promises that “should we crash our competitors will sort it. Don’t worry.” It’s prudent to consider how the detail of Solvency II reform impacts the Financial Services Compensation Scheme before moving ahead.
Take the time to consider whether buyout is appropriate. Pricing can be better than an actuarial model expects and still not be value for money. Change the premise from “get rid ASAP” to “run on with purpose” and much better options appear. DB Pension Policy Reset to Secure and Build (www.c-suiteps.com)
FD Carol Animations summarises the case for a mindset change
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