Equity release mortgages considerations for UK life insurers

Equity release mortgages (ERMs) have been sold for many years in the United Kingdom and in their early days were subject to controversy around customer fairness. However, ERMs are now a growing component of UK life insurers’ balance sheets, and are mired in a new controversy, this time around their prudential and capital treatment when used to match annuity liabilities.

Milliman consultants have drafted a briefing note that brings together the recent developments affecting the valuation and capital treatment of ERMs in the UK, particularly those brought about by the evolving prudential regulatory regime being put in place by the Prudential Regulation Authority (PRA) and the debates around the most appropriate technique for valuing the no-negative-equity-guarantee.

This paper by Milliman’s Robert Bugg and Paul Fulcher is relevant to life insurers with annuity liabilities who invest in, or are considering investing in, ERMs.

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