Rothesay Life has purchased an £860m portfolio of equity release loans as the Prudential Regulation Authority (PRA) is due to end its consultation on insurers' use of the asset to back business.
Rothesay Life will acquire the assets and risks associated with approximately 6,200 equity release mortgages from holding company UK Asset Resolution. The transaction is due to be completed within the next few weeks, and is based on the portfolio's position as at 30 April 2018.
It comes as a consultation paper, issued by the PRA on insurers' use of the asset class, is due to close on 30 September. If the paper's proposals are implemented, insurers could see increased future capital requirements around these assets.
Rothesay Life said the price paid for the portfolio reflected its "prudent approach" to reserving enough capital in line with the PRA's recommendations, and that it did not believe the outcome of the consultation would have a material impact on its financial position or prospects "assuming that the final policy statement is consistent".
According to its 2017 annual report, the insurer's allocation to equity release mortgages made up 2% of its total portfolio.
However, in March, the insurer completed the reinsurance of Prudential's £12bn annuity portfolio, which may have affected the proportions of its portfolio allocation.
The PRA's consultation is an attempt to address concerns that insurers are not holding appropriate capital to back the risks of equity release mortgages. The proposed implementation date is 31 December, but insurers that would be significantly affected will be allowed to phase in changes over three years.
Separately, schemes looking to de-risk and secure good pricing should ensure they have good price-lock mechanisms in place as insurers may look to become more prudent in their approach to pricing new business.
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