Pension insurers could soon be given new investment flexibilities designed to boost their ability to allocate to UK assets – a move that could improve bulk annuity pricing.
The Prudential Regulatory Authority (PRA) has launched a consultation about the introduction of a new “Matching Adjustment Investment Accelerator”, or MAIA, designed to improve insurer’’ access to “time sensitive investment opportunities”.
Currently, insurers must seek permission from the PRA before investing in certain types of assets, a process that can take up to six months, according to consultancy group Aon.
The MAIA would allow insurers to make investments and register them retrospectively with the PRA within 24 months.
Insurers will have to register to use the MAIA, and will still be subject to limitations under the “matching adjustment” rule.
There will be limits as to how much an insurer can invest using the MAIA – 5% of best estimate liabilities or £2bn – as well as reporting and contingency requirements.
“Matching adjustment” allows insurers to include in its pricing calculations returns from a wider range of assets than those deemed “risk free” by the current insurance investment regulations.
In a research note, Aon said the proposal “may support competitive bulk annuity pricing as insurers take advantage of asset opportunities that have a short window in which to invest”.
“The MAIA is likely to be welcomed by insurers who may be able to take advantage of more investment opportunities to support their bulk annuity business, giving more confidence on the level of annuity pricing that they can support,” Aon said.
Sam Woods, deputy governor for prudential regulation and chief executive officer of the PRA, said: “This innovation will enable insurers to make more rapid investment decisions and support growth in the UK economy, while protecting policyholders.”
It is part of a number of regulatory proposals designed to help boost economic growth. The government has requested that all regulators consider how they can amend rulebooks and frameworks to support this aim.
The Pensions Regulator and the Financial Conduct Authority have both set out their own plans to streamline regulations and encourage growth-oriented activities.
