UK bulk purchase annuity (BPA) firms will be stress tested on the use of funded reinsurance, Prudential Regulation Authority (PRA) head of division, London markets, Lisa Leaman, has confirmed.

Speaking at Westminster and City’s Annual Conference on bulk annuities, Leaman said the stress test “will assess the ability of firms to measure the risks associated with the recapture of a Funded Re arrangement in stressed conditions”.

She stated: “As this scenario is exploratory, the conclusions will only be published at the aggregate sector level.

"We will continue to monitor the volume and the increase in complexity of Funded Re arrangements, as the product develops.

"This will inform our views on the publication of individual firm-level results of the Funded Re stress in future Life Insurance Stress Test (LIST) exercises.

“We are grateful for firms’ responses and engagement, and we intend to publish our final policy in July. At the same time, we are developing the Funded Re features of LIST in a consistent way with the expectations in the draft supervisory statement.”

This article first appeared on our sister title, Insurance Asset Management.

---