Prudential Regulation Authority Rulebook

1.1

This supervisory statement is addressed to all UK firms that fall within the scope of the Solvency II Directive (‘the Directive’),¹ and to Lloyd’s. It sets out the Prudential Regulation Authority’s (PRA’s) views on the general issues arising from longevity risk transfers, and clarifies the PRA’s expectations on UK insurers and reinsurers carrying out these transactions as either the buyer or the seller of longevity protection.

1.2

This statement should be read in conjunction with the PRA’s rules in the Solvency II Sector of the PRA Rulebook and the PRA’s insurance approach document.²

1.3

This supervisory statement expands on the PRA’s general approach as set out in its insurance approach document. By clearly and consistently explaining its expectations of firms in relation to the particular areas addressed, the PRA seeks to advance its statutory objectives of ensuring the safety and soundness of the firms it regulates, and contributing to securing an appropriate degree of protection for policyholders.

1.4

Longevity risk is the risk that policyholders, pension scheme members or other underlying beneficiaries, in aggregate, live longer than expected. The main life insurance products exposed to this risk are immediate and deferred annuities, although certain health contracts and possibly with-profits funds may also be exposed. In addition, there is likely to be some exposure to longevity risk in an insurer’s own staff pension scheme, if this is defined benefit. There is also growing longevity exposure among general insurers in relation to periodic payment orders.

1.5

The PRA recognises that there has been an active market in the transfer of longevity risk for a number of years. However, the PRA would be concerned if firms became active in this market for reasons other than seeking genuine risk transfer.