The UK’s Prudential Regulation Authority, a division of the Bank of England, is reported to have begun questioning UK pension insurers and providers over their use of offshore reinsurance to transfer pension risks.

Bank of England logoWith pension de-risking a top priority for insurers, as pension providers grapple with lower returns and longevity risk, among other issues, offloading some or all of a pension scheme to reinsurers has become increasingly attractive.

The UK’s Times newspaper reported at the weekend that Sam Woods, head of the UK Prudential Regulation Authority, called some of the UK’s largest insurers leaders to meet with him last week.

According to the report, Woods has demanded a significant level of information into reinsurance arrangements that pension providers have entered into.

The regulator understands the need for risk transfer and the fact that reinsurers are able to and have the appetite for assuming pension liabilities from insurers.

The concern lies in pension liabilities being transferred overseas, with reinsurers in offshore domiciles often the recipients of UK pensioners assets, the PRA is concerned that this takes the pension assets outside of its regulation and that should an offshore reinsurer fail would the obligations to the pensioners still be met.

In some cases the risk transfer deals are purely longevity related, so the pensions themselves remain with the UK insurer while a major global reinsurance player takes on the risk associated with pensioners living longer than forecast.

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