UK Regulator Sets Out Insurance Supervision Priorities for 2026

On 15 January 2026, the Prudential Regulation Authority ("PRA") published its annual letter setting out supervisory priorities for the UK insurance sector for the year ahead.

What is the purpose of the PRA's 2025 Insurance Supervision priorities letter?

The PRA issues this annual letter to outline its thematic supervisory priorities for the UK insurance sector.

The PRA notes that many of the priorities for this year reflect those from 2025. In particular, it notes "…… trends include continued pressures in the bulk purchase annuity (BPA) market, a softening underwriting cycle in the general insurance market, and a need for firms to continue to invest in their operational resilience.." 

What are the key PRA priorities for the life insurance sector?

1. BPA Market

• The PRA states that it will continue to pay particular attention to the BPA market given the long-term nature of the risks underwritten by insurers, their changing investment strategies and other competitive pressures. The PRA remains concerned that these pressures "create incentives for firms to weaken pricing discipline or their risk management standards."
• Related to this, the PRA also states that it will revisit how firms have responded to, and managed the risks identified under, its July 2025 Dear CRO letter on solvency-triggered termination rights ("Dear CRO Letter") for life insurance firms writing BPAs. Solvency triggered termination clauses ("STTRs") provide pension scheme counterparties with the option to terminate a BPA buy-in arrangement in the event of the insurer’s solvency position breaching a pre-defined threshold for a given period of time. In the event of an STTR termination, the clauses provide for the relevant liabilities of the insurer to be recaptured by the pension scheme, along with a proportion of the assets used by the insurer to back the liabilities. In 2025, the PRA estimated in its Dear CRO letter that the "total exposure of life insurers to STTRs through BPA contracts with a STRR clause in force, was c. £50 billion". The PRA notes that STTRs bring inherent risks to insurers’ balance sheets which would need to be managed concurrently in a period of stress. See our alert on this topic for further information: Mayer Brown – PRA CRO Letter on solvency triggered termination rights
• Funded reinsurance will be a key area of supervisory focus. The PRA recognises that funded reinsurance can provide access to additional capital and asset classes but notes that it introduces material risks which need to be carefully managed. It refers specifically to its July 2024 Dear CEO letter (Funded Reinsurance – Implementation Approach) which set out supervisory expectations on mitigation of funded reinsurance risks including in particular the "underestimation of the counterparty risks of UK insurers' balance sheets, the capital requirements appropriate for these risks, or the risks of recapture of assets onto cedants balance sheets if a FundedRe company were to default." To address the risks identified, the PRA has been engaging with insurers since September 2025 and in the letter, takes the opportunity to confirm that it will indeed be proposing policy reform. The PRA will update on this in the second quarter of 2026. See our alert on this topic for further information: Mayer Brown – PRA Update on Approach to FundedRe

2. Investment Strategies and Private Credit

• Insurers continue to expand their investment strategies into new asset classes and geographies. The PRA notes that "as corporate bonds have remained narrow, some firms have made more use of strategic structured and synthetic investment which can introduce potential liquidity risk. "The implementation of the PRA’s new liquidity reporting requirements in September 2026 is expected to provide the regulator with greater insight on the liquidity exposures of major UK insurers". See our alert on this topic for further information: Mayer Brown – PRA Consultation on Matching Adjustment Investment Accelerator
• Relatedly, the PRA is clear that insurers should "…..pay particular attention to exposures to private credit assets, given the risks identified by the Financial Policy Committee about the potential interlinkages and vulnerabilities of exposures to private markets in stressed conditions. The Bank of England (the Bank) is launching a further system-wide exploratory scenario (SWES) in 2026 to focus on how private capital flows could affect market dynamics and financial stability, which will seek insights from a range of market participants including insurers."

3. New capital and ownership structures

The PRA continues to observe additional capital and new investors seeking to enter the BPA market.  Whilst it is open to "a diverse range of business models and ownership structures for UK life insurers", the PRA notes that it attaches particular importance to the role that boards play in ensuring robust independent legal entity governance and effective management of any potential conflicts of interest.

4. Life Insurance Stress Test

In November the PRA published the results of the 2025 LIST exercise: Life Insurance Stress Test Results 2025 The results will inform the PRA's supervisory approach at an individual level as well as its policy development work.

What are the key PRA priorities for the general insurance sector?

1. Underwriting assumptions in internal models and Exposure Management

• The PRA has expressed concern regarding insurers making assumptions in their internal models about future underwriting performance that are overly optimistic compared to their underwriting track record. In such cases, insurers' solvency capital requirements ("SCRs") could be understated and this risk increases as the underwriting cycle weakens. In 2026, the PRA will increase its engagement with the most insurers with the most material differences in actual/assumed profitability in their internal models. If unable to give robust justification of their model assumptions, including by reference to historical underwriting performance, the PRA states that it "will consider what further supervisory action is necessary, drawing on the full range of tools available under Solvency UK, to ensure SCRs are not materially understated ".
• The PRA's exposure management reviews have identified that insurers need to improve data quality and standards and further invest in internal infrastructure to ensure sound prudential risk management. The PRA will engage further with firms where it sees poor practices.

2. Delegated Authority Underwriting

To ensure that underwriting standards are maintained, the PRA states that insurers should ensure they have strong oversight arrangements in place to govern and monitor the performance of these arrangements, including consideration of how they would exit unprofitable arrangements. Over 2026, the PRA will be engaging with affected firms on this.

3. Dynamic General Insurance Stress Test

In May 2026, the PRA will conduct the Dynamic General Insurance Stress Test ("DyGIST"), a semi-live crisis exercise simulating the dynamics of a market-wide event over a focused three-week period – the insurers participating have been included in its announcement.  The PRA will use insights from DyGIST – including assessments of insurer's risk management response capabilities to inform its supervisory assessments.

What are the specific cross-sectoral priorities relating to resilience?

1. Cyber, AI and Operational Risk

Following on from the PRA's review of firms' implementation of the March 2025 operational resilience requirements, the PRA notes that it will expect insurers to continue to improve their operational resilience testing, in particular, deeper engagement with third party and outsourced providers to scenario test to material operational disruption. For cyber risk assessment, the PRA will continue its CBEST and STAR-FS engagement for higher impact firms. Artificial intelligence presents opportunities and risks for the insurance market. The PRA is clear that the insurers need to "adopt new technologies without compromising on safety and soundness."

2. Solvent Exit Planning

By 30 June 2026, all in-scope insurers will need to have complied with the PRA's new solvent wind down exit planning rules, including the preparation of a solvent exit analysis ("SEA").  The SEA will need to consider, amongst other things, material barriers to solvent exit and " the financial and non-financial resources required, a cost/benefit analysis of alternative options, and a determination of whether the firm writes business that may be difficult to substitute in the market."

Finally, what are the PRA's priorities around growth and competition in the insurance market?

• Captive Insurance: The PRA states that a key priority for 2026 is the development of the new UK captive regime (first discussed by the PRA in July 2025), on which it intends to consult further in Q3 2026, with a view to launching the new regime in 2027.
• Alternative Life Capital Options: In addition, the PRA will also continue to seek views on alternative life capital options (a discussion paper was shared by the PRA in November 2025), with the intention to remove barriers to patient capital entering the sector in a way that supports UK growth and is consistent with the long-term nature of life insurance liabilities. See our alert on this topic for further detail: Mayer Brown – Alternative Capital for the Life Insurance Sector.
• Mutuals: The PRA will continue working with the Financial Conduct Authority ("FCA") to consider how best to support the mutuals landscape to drive inclusive growth in the UK. This will follow on from the Mutuals Landscape Report issued by the PRA and FCA on 5 December 2025.