An interesting article in the FT published this Sunday, quoting one expert as saying that the Prudential Regulation Authority is playing “fast and loose” with pensions over its willingness to nod through transfers of savings from long-established insurers to newer specialist rivals.
The article says that a group of pensions experts and some Prudential Assurance policyholders have written to Sam Woods at the PRA, arguing that the recent High Court judgment blocking the transfer of pensions from Prudential to Rothesay “raises serious questions about the PRA’s oversight of such transfers”.
The authors are concerned that the watchdog downplayed the “weak financial position” of Rothesay relative to Prudential by neglecting to flag its heavy dependence on “artificial capital”.
See the table above which demonstrates starkly how the capital of four insurers depends heavily on this “artificial capital”, and how for three of them – Just, Rothesay and PIC, removing the MA capital apparently makes them insolvent.
Professor David Miles (former member of the Bank of England’s Monetary Policy Committee) is quoted as saying that the practice of creating capital out of nothing is “nonsense and a dangerous road to go down”, although he is not one of the signatories of the letter, or so we heard.
However, Rothesay strongly challenges the claims of the letter, claiming that it contains “multiple significant factual inaccuracies and errors”.
Rothesay Life is one of the best capitalised insurers among its peers and has significant backing from its shareholders, who in the last month injected £700m of new capital in order to fund further growth of the business,” the firm said. “Policyholders can gain comfort from the high level of security offered by the PRA’s regulatory capital regime as well as its support from strong and committed shareholders.”
We can rest assured then, although I hear that some of the policyholders are not so sanguine.