The PRA has published a letter to life and general insurers about longevity risk transfers, and the counterparty risks they transfers can generate.  Here’s a key extract:

“An insurer accepting risk from, transferring risk to, or hedging risk with, a single or small number of counterparties (or connected counterparties) may expose itself to … significant levels of counterparty risk … [(Re)]insurers [are required] to have … strategies, processes and reporting procedures necessary to identify, measure, monitor, manage and report [on] the risks facing them both now and … in the future… The PRA … expects firms to monitor, manage and mitigate these concentration risks. This includes risks which are covered by the … SCR … as well as those which are not … [H]olding capital under the SCR in relation to counterparty default risk may not be sufficient in and of itself to mitigate this risk …

… the PRA expects to be notified of longevity risk transfer and hedge arrangements and the firm’s proposed approach to risk management well in advance of completing such a transaction. This expectation applies where a firm is buying or selling longevity protection … This will enable [us] to consider whether the risks of the proposed transaction are being appropriately managed and that the transaction has an underpinning rationale that is consistent with good risk management principles”.