In recent years insurance companies, including giants like L&G and Aviva, have been buying up some of the UK’s gold plated pension schemes.

When they buy up these pensions insurance companies need to guarantee they can pay out the pensions and benefits guaranteed to the savers so they turn to funded reinsurance.

These insurance buyouts are big buiness and this year pensions consultancy LCP expects at least £50bn worth of pension assets to change hands.

In order to complete these large deals – involving billions of pounds of savers’ retirement money – the insurance company has to promise to pay out the pensions of the pension schemes members both now and in the future.

This is when the insurance company will turn to funded reinsurance which is often provided by foreign insurance companies.

In November 2023 the PRA, the Bank of England’s regulatory arm, said insurers were “increasingly making use of cross-border funded reinsurance arrangements”.

The PRA said this money was coming from abroad and from companies whose origin was not always clear and “who may be more exposed to a range of illiquid investments including through private asset origination capabilities of affiliated alternative asset managers.”

The regulator highlight the use of counterparty risk. In 2008 Lehman Brothers went bankrupt owing $613 billion, this was blamed on its complex exposure to counterparty risk where it was not clear who owned what and where. So complex that it took years to track down, although the money was recovered.