BoE to stress test insurers on exposure to reinsurance firms

Written by Adam Cadle

13/02/2024

The Bank of England (BoE) is planning to stress test insurers concerning their exposure to reinsurers through a flurry of corporate pension deals, as concerns grow about the risk posed by offshore arrangements to UK retirement savers.

According to the Financial Times, the PRA has said in next year’s stress test, it plans to include an “exploratory scenario”, modelling the impact on insurers of a failure in their funded reinsurance arrangements.

People familiar with the matter said the scenario would most likely include the collapse of a significant funded reinsurer being used by the life insurer, meaning that the risks are “recaptured” by the primary insurer.

As insurers look to free up capital to conduct more deals, they are entering into transactions to pass on a slice of their liabilities – and the assets that back them – to reinsurers which are often located in offshore places like Bermuda. The growing trend for these deals has prompted concern that they might be creating a vulnerability through what the PRA calls “concentrated exposure to correlated, credit-focused reinsurers”.

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