Modest slowdown in premium growth distinguishes second-quarter financial results for MPL specialty insurers
We look at the financial results for medical professional liability (MPL) insurers for the second quarter of 2022.
Across the life insurance industry in the UK, interest in illiquid assets continues to grow and generate actions in terms of an increased breadth and quantity of investment. At the same time, it is unsurprising to see that illiquid assets are a key area of activity being closely monitored by the Prudential Regulation Authority (PRA), where a number of expectations with reference to illiquid assets have been set out in the Supervisory Statements1 issued in recent years. Illiquid assets were also referenced by the PRA’s 2021 Quantitative Impact Study (QIS)2 as part of the UK’s review of Solvency II.
We recently conducted Milliman’s 2021 Illiquid Asset Survey. This was a private and industry-wide survey in respect of the market practice adopted by insurers investing materially in illiquid asset classes. The survey focused on two areas of particular interest — assessing illiquid asset origination and credit rating assessment.
With our survey participants all being very active players in the UK’s bulk purchase annuity (BPA) market, we were able to cover the majority of the activity in UK insurers’ illiquid asset investments. The survey also enabled us to explore whether there was any consensus from the participants on a number of key subtopics within those two topical areas.
As part of the survey, we developed a tailored report for each participant and conducted one-to-one sessions to discuss the results and share our key observations.
In the rest of this memo, we summarise a number of key observations from the 2021 Illiquid Asset Survey.
Insurers (and in particular insurers writing BPA business) are investing an increasing proportion of their balance sheets into illiquid assets. At the same time, the list of the types of illiquid assets which insurers are buying is actually relatively stable. Because ECAI ratings are often unavailable for such assets, credit quality assessments conducted internally have become increasingly important. Insurers are therefore investing significant resources into developing, validating, and monitoring internal credit quality assessments.
We look forward to running the Illiquid Asset Survey again in 2022 to explore other areas of the topic.
As the illiquid/alternative investment market becomes more and more competitive and widespread, insurers must continue to develop their skill sets in managing those types of assets on their balance sheets through better alignment across various frameworks related to origination and management. Examples of such frameworks are investment origination (and risk management) frameworks, liquidity risk management frameworks and credit research frameworks, as well as any overarching objectives in association with transitioning to net-zero investment portfolios.
Milliman consultants have extensive market experience in helping clients understand the appropriate treatment of different types of illiquid and unrated assets across various purposes. Together with our risk management experts on climate risk or complex risks in general, we are well placed to help our clients address a broad range of questions and challenges, for example:
To discuss this note or any related topics please contact your usual Milliman consultants.
1Such as Supervisory Statement 1/20 (Prudent Person Principle), Supervisory Statement 3/17 (Illiquid unrated assets) etc.
2Booth, C., Christy, N., Crowson, J. et al. (July 2021). The PRA QIS Exercise. Milliman Briefing Note. Retrieved 21 April 2022 from https://us.milliman.com/-/media/milliman/pdfs/2021-articles/7-29-21-the-pra-qis-exercise.ashx.
3Booth, C., Fulcher, P., Vosvenieks, F., & Ward, R. (June 2019). Liquidity Risk Management: An Area of Increased Focus for Insurers. Milliman White Paper. Retrieved 21 April 2022 from https://www.milliman.com/-/media/milliman/importedfiles/ektron/liquidity_risk_management_an_area_of_increased_focus_for_insurers.ashx