Our reply to the letter by Rothesay Life chairman Naguib Kheraj was published today in the FT, with a lovely picture of the bookies at a race course. “Imagine if punters demanded some of their winnings just before the race started”.
Letter to watchdog full of inaccuracies?
Rothesay’s chairman (Naguib Kheraj) has written to the Financial Times saying that the policyholders and experts’ letter to the PRA “contains so many inaccuracies as to be unhelpful and irresponsible”.
Unbalanced sheets
The Independent Expert report on the Prudential-Rothesay transfer has a curious statement in footnote 17.
The figure of c.£11.3 billion differs from the figure of c.£12.9 billion in paragraph 5.17 because £11.3 billion is the gross BEL held by Rothesay in relation to the reinsured business, whereas £12.9 billion is PAC’s gross BEL in relation to the reinsured business. The difference between these figures principally arises because the Transferring Business is not part of PAC’s Matching Adjustment portfolio (and therefore its BEL is not calculated using the Matching Adjustment), whereas the inwardly reinsured business in Rothesay under the Laker Reinsurance Agreement is part of Rothesay’s Matching Adjustment portfolio, which means that Rothesay’s BEL is calculated using a discount curve that includes a Matching Adjustment, resulting in a higher discount rate and a lower BEL.
My emphasis.
PRA playing fast and loose
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.
Continue reading “PRA playing fast and loose”
Sound of silence
Sorry for the lull. Our latest work, and this was always the plan, has been on the wider issue of specialist insurers who make excessive use of the Matching Adjustment ‘benefit’ to create capital, both statutory and regulatory, on their balance sheet.
The recent High Court judgment which blocked the proposed transfer of annuities from Prudential to Rothesay was welcome to us, but came as a surprise, and raised legal questions about what we can publish while the judgment is under appeal.
We hope to say something next week, so stay tuned.
Loan arrangers
Excellent article in the Eye this morning on the high court win for Prudential policyholders.
A sure way to make money
Kevin just spotted an excellent piece by our friend David Miles (ex MPC at the Bank) on the valuation of pension liabilities.
What next for MA
A great piece of research from InsuranceERM, here for those with access. For those who haven’t (and for everyone, really), a few of the key points.
Just One More Thing
Kevin Dowd 3 July 2019
Or maybe a couple of things. Still working on the baffling case of the logic of the Matching Adjustment, and I wonder if even Columbo could solve this one.
Let’s sweep aside the objections of the Doubting Thomases (here, here, here etc.) that MA is theoretically flawed. Perhaps IFoA president-elect John Taylor is right when he claimed that MA is not only a Fundamental Actuarial Principle but sound too.
But then I struggle with implementation. You take your credit spread, which is known. You decompose the spread into the Fundamental Spread, the risky bit, and the Matching Adjustment, which is the non-risky bit. I still don’t quite understand the bit about some of the spread above risk-free being risk-free, but that might be me so let’s move on.
Ah yes, you say. Implementation is easy. You just apply the regulatory formula.
From the postbag – Merton model part II
K9 asks whether I believe some or all of the following.
1) the Merton model is inappropriate here;
2) that the BoE has parameterised the Merton model incorrectly; or
3) that this “residual” bit of the spread is accounted for something other than credit and liquidity.
All three as it happens.