Equity Release Mortgages – Where Does The PRA Now Stand?

For an asset class that represents just 1.4% of insurer's asset holdings¹, equity release mortgages (ERMs) have consumed a remarkable amount of firm and supervisory time. A decade or so ago, the regulatory challenge of this asset class lay on the conduct side. More recently, however, and not without some irony, the main mitigant of these conduct risks, the no negative equity guarantee² (NNEG), has switched the focus primarily onto the inherent prudential risks of equity release, namely its illiquidity and, owing to the NNEG, the long term exposure it brings to the fortunes of the housing market without further recourse to the borrower.

The PRA has recently published supervisory statement SS3/17 on illiquid unrated assets and ERMs in the context of the Solvency II Matching Adjustment (MA). SS3/17 (summarised in the Annex to this blog) follows a discussion and consultation process stretching over some 21 months - a reflection no doubt of the technical debates,