A fine piece from Ford of the FT today on pension buyouts.
Continue reading “Pension buyouts carry needless credit risks”
Solvency II call for evidence
Sorry to have been quiet recently. The reason is a number of projects which are under confidentiality restraints. Much as we dislike the whole concept of ‘confidentiality’, i.e. secrecy, it is the price for being involved at all.
However this call for evidence from HMT is too good to ignore. As InsuranceERM reports:
Matching adjustment
The matching adjustment (MA) is a vital contributor to a strong Solvency II capital position among UK life insurers, adding close to £70bn of capital to solvency balance sheets.
It is, however, very restrictive in terms of the types of liabilities and assets that qualify – and the UK is looking at the possibility of loosening that. The MA also requires the regulator to operate a strict approval process, which the government is also seeking to ease.
The restrictive rules have produced unintended consequences, the UK says. For example, the PRA has allowed firms to restructure, via securitisation, assets such as equity-release mortgages that would not otherwise qualify for MA inclusion. However, the regulator dislikes the additional complexity this introduces, and the fact that it is costly and is a barrier to its use by smaller firms.
You couldn’t make it up.
Second lockdown?
The chart above is constructed using data from the new government downloadable database https://coronavirus.data.gov.uk , showing cases versus admissions versus deaths in England, all on a daily basis.
The more it changes
From the Penrose report following the Equitable Life disaster, 2004.
More than a slap on the wrist
Sanctions against Deloitte and two audit partners in relation to Autonomy Corporation Plc
The Financial Reporting Council (FRC) today announces sanctions against Deloitte and former partners, Richard Knights and Nigel Mercer, following an investigation in relation to the audit of the published financial reporting of Autonomy Corporation Plc (Autonomy) for periods between January 2009 and June 2011 (the Autonomy Audits). An independent Disciplinary Tribunal made findings of Misconduct following a seven-week hearing during October and November 2019 and sanctions were determined following a hearing in July 2020.
Sanctions
- Deloitte has been fined £15 million, severely reprimanded and has agreed to provide a Root Cause Analysis of the reasons for the Misconduct, why the firm’s processes and controls did not prevent the Misconduct and whether the firm’s current processes would lead to a different outcome.
- Richard Knights has been excluded from membership of the Institute of Chartered Accountants for England and Wales for five years and has been fined £500,000.
- Nigel Mercer has been fined £250,000 and received a severe reprimand.
Q3 dividends
For FTSE 100 and 250 stocks with dividends to be paid by end of September: 40% down on the level this year, as opposed to 60% down for Q2. So, you know, getting somewhat better.
Corporate bonds generally back to pre-virus levels, with a some troubled exceptions (aviation, tourism).
So perhaps the PRA was right in claiming that volatility is short term, and that what goes down is bound to go back up in time.
No, you know we don’t believe that.
On the power of expensive lawyers
Dan McCrum of the FT has a further piece here about how various agents, including the German regulators, tried to stifle his investigation of Wirecard. The article is behind a paywall, but is summarised almost verbatim by Tyler Durden at Zerohedge here.
Many of the issues have already been picked up in mainstream media, but there are two that deserve more comment.
Equity release in the news again
By Adam Williams, Sunday Telegraph.
.. those looking to release equity have been urged to compare the fees charged by advice firms. The UK Shareholders’ Association, a not-for-profit consumer group, found that some homeowners could be charged almost 10 times more if they used certain advice firms. All equity release sales must be conducted through an adviser.
But the UKSA said the fee often bore no relation to the amount of advice given. It found that one broker, Age Partnership, charged a fee equivalent to 2.25pc of the cash released. This would mean that a 70-year-old taking out a 40pc mortgage on a home valued at £750,000 would pay £6,750 in fees.
[..]
The UKSA questioned whether there was a potential conflict of interest at firms that only charged customers who were sold a loan, rather than charging for the advice itself.
It was twenty years ago today
The chart above shows one of the stranger features of equity release mortgages: the wide variation between the projected indexed value of a property, and the actual sale value it achieved at auction. The data is based on Aviva’s Equity Release Funding No. 4.
The red line is the rebased value of the property index used by the fund, the Halifax, from October 2007 to July 2020.
A new euphemism
Insurance news. Legal & General today announced that it has completed a £530 million buy-in for the Siemens Benefits Scheme, a pension fund of the international company.