I have just found two other actuarial replies to the Solvency II review. Andrew Smith’s is at LinkedIn here, and Paul Teggin’s at LinkedIn here.
Smith’s submission is very strongly worded.
Apologies to Turnbull
Mr Postbag complains, concerning my previous post, and my claim “I believe it is the first time a qualified, professional actuary has commented on MA in such terms”, that Craig Turnbull has also made some fairly critical comments of MA in his HMT submission here.
Please accept our apology, Craig.
Let there be many more
Alan Reed has posted his response to the HMT consultation on Matching Adjustment on LinkedIn here. The key paragraph is this:
The proposals suggested in this section of my response address what I consider to be serious issues. To the extent that the current MA regime is allowing firms to claim more MA benefit than is justified by the inherent features of their assets and their portfolio management strategies, as a result of arbitraging weaknesses in the regime, then some MA portfolios must, as a direct result, be providing a lower level of long-term security for their policyholders/beneficiaries than the MA regime intended. Further, potentially, one or more MAPs may plausibly become unsustainable as a result of too much extraction of value early by advisors and shareholders, leaving insufficient to allow the MAP to continue to operate sustainably in compliance with the MA regime. Such an outcome could reasonably be seen by society as a failure of the industry, regulation and associated professions which a society that has already tolerated Equitable Life and the Great Financial Crisis may, reasonably, not be accepted lightly by society.
I commend Alan for this, and I believe it is the first time a qualified, professional actuary has commented on MA in such terms. Let there be many more.
Just Group Business Update for the Year Ended 31 Dec 2020
Here.
Key points. On the sale of £540m of lifetime mortgage balances on December, a footnote explains that the proceeds are “Amount outstanding, including rolled up interest”. This is simply the loan balance, without any benefit of MA, but they replaced with corporate bonds, saying that “sale proceeds were immediately reinvested in corporate bonds, with the reduced yield resulting in a one-off reduction in IFRS net equity of £90m.” I.e. they are claiming MA on the bonds, but it is not as much as the MA on the ERMs, unsurprisingly.
I occasionally correspond with a Just shareholder who refuses to believe that the firm bakes in expected profit from ERMs. I wonder how he would explain that.
They note also that they have completed their third NNEG hedge. Again, you would expected this would lead to a loss on the assumption that the hedge is at market value, although nothing is certain in the crazy world of non-market actuarial valuation.
Do pension buy-outs carry needless credit risks?
Do pension buy-outs carry needless credit risks? I think they do but Catherine Hopper, unconflicted partner at LCP, thinks not.
Continue reading “Do pension buy-outs carry needless credit risks?”
Clever finance
Tracy Blackwell’s (Pension Insurance Corp) reply to Jonathan Ford’s Sunday FT article.
Pension buyouts carry needless credit risks
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.
More masks, fewer cushions?
InsuranceERM reports today on “Covid-19’s consequences for solvency, stress and scenario testing”.
Behind a paywall, but the gist is as follows.
Road to riches
See here for this letter of 29 June (but only just published) from Andrew Bailey, Governor of the Bank of England, to Mel Stride, chair of Treasury Committee, in reply to Stride’s letter of 10 June with questions following on from the Treasury Committee evidence session on 20 May.
It really is the most astonishing thing I have ever seen coming out of the Bank, and there is material for many posts. But I will start with the weirdest one.