The restructuring of equity release mortgages through a subsidiary company set up for this purpose and wholly owned within the insurance group is now "likely to be acceptable", provided that proposals comply with the relevant legal and regulatory requirements, the Prudential Regulation Authority (PRA) has said in a new letter to the industry.
In the letter Paul Fisher, deputy head of the PRA and executive director, supervisory risk and regulatory operations, said that the authority was clarifying its expectations on ERM restructuring, as some firms are seeking to restructure their ERM portfolios in order for them to be eligible for inclusion within a matching adjustment portfolio of assets.
In his previous letter dated 15 October 2014, Fisher said the PRA's advice was that ERMs would be unlikely to qualify for inclusion in a matching adjustment portfolio (InsuranceERM, 16 October 2014, Equity release mortgages out of matching adjustment porfolios).
But the PRA stressed in its latest pronouncement that any restructure should be appropriately recognised within the group's risk management framework, including the changes in the risk profile for all the funds and legal entities affected by the asset transformation.
The PRA will not recommend any particular form of restructure or comment on specific proposals put forward by firms. However, the PRA said it had considered the general issues arising out of common elements of firms' proposals, and frequently asked questions, in order to provide clarification ahead of firms submitting their formal applications for approval from April 2015.
The letter is available at the PRA's website (link below).