PRA publishes letter on solvency-triggered termination rights in BPA transactions
The Prudential Regulation Authority (PRA) has published a 'Dear Chief Risk Officer' letter by its executive director of insurance supervision, Gareth Truran, to share its view of the potential risks arising from the use of solvency-triggered termination rights clauses (STTRs) in bulk purchase annuity (BPA) transactions and its assessment of how firms are mitigating those risks. The letter follows a thematic review of STTRs, which allow pension scheme counterparties to terminate BPA buy-in arrangements if an insurer’s solvency position falls below a defined threshold. The PRA notes that while these clauses are becoming more common, they may introduce financial and operational risks, particularly in stressed conditions, and could affect firms’ liquidity, asset composition and matching adjustment (MA) portfolios.