BSA 2019: PRA urges caution on equity release

Ryan Bembridge

May 24, 2019

The Prudential Regulation Authority’s chief executive Sam Woods (pictured) has urged insurers and building societies to treat equity release with caution on their balance sheets.

Speaking at the Building Societies Annual Conference held at the Queen Elizabeth II Centre in Westminster this morning, Woods said the PRA has intervened with the way insurance companies treat equity release on their balance sheets already –  but also warned building societies to take stock of the complicated nature of equity release products.

He predicted for the sector to grow significantly unless the UK starts building a greater number of houses.

Woods said: “We have been very focused on equity release and how that works.

“We’ve got quite a big chunk of that on the insurance side and we did become quite uncomfortable with the way that is was being treated on insurance company balance sheets.”

He added: “I know that some building societies have exposures to this asset class as well, and would urge them to proceed with caution given the complexities involved.”

According to Woods a “natural place” for equity release to go is with annuity writers.

He said: “We think it likely that this product will grow in the UK for reasons unrelated to financial regulation, and that it makes sense for annuity writers to be an important part of the picture.

“But this has been a classic example of a weak spot in the regulatory regime, which was simply not designed with this product strongly in mind.

“The result of this has been an excessively wide variation of approaches for these assets at insurance companies, with practices at the more aggressive end of the market presenting a risk in our view to policyholders and to our competition objective.

“We have therefore shored up this part of our framework and put in place a much more solid basis for this asset class going forward.”

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