UK: The PRA sets out its supervisory priorities for insurers in 2025

The PRA’s priorities are based around two themes:

Evolution in the insurance market:  the PRA will focus on 

• Implementation of the Solvency II and other policy reforms - with the Solvency II reforms having come into effect on 31 December 2024, the PRA will be working with firms to embed the changes and will consider ways in which it can support firms to take full advantage of the reforms, particularly in relation to matching adjustment and internal model approval processes.  
• Bulk purchase annuity market developments, including funded reinsurance - the PRA reiterated its expectation that firms must make sure their risk management and control frameworks remain robust as business practices and transaction structures evolve.  On funded reinsurance, the PRA notes that firms’ self-assessments submitted last year show that firms are not yet fully meeting the PRA’s expectations set out in Supervisory Statement 5/24.  The PRA will be monitoring firms to ensure ‘rapid progress’ is make in addressing identified gaps.  The 2025 Life Insurance Stress Test will include a funded reinsurance recapture scenario. 
• Cyclicality in the General Insurance Market – firms are expected to remain focused on the adequacy of reserving standards and maintaining underwriting discipline in the face of continuing environmental, geopolitical and economic uncertainties.  Natural catastrophe and cyber underwriting risks remain a PRA priority.

Evaluating and maintaining resilience:

• The Life Insurance Stress Test 2025 will be launched in January.  The results will provide valuable insights into the financial resilience of life insurers.  
• The PRA will focus on improving liquidity reporting by insurers.  This will include follow-up to the PRA’s thematic  review on insurers’ liquidity risk management.   The PRA’s consultation on closing liquidity reporting gaps and streamlining Standard Formula reporting (CP19/24) closes on 31 March.  Implementation of the changes set out in the paper will be on 31 December 2025.
• The PRA’s new rules and expectations on solvent exit planning by insurers will come into force on 30 June 2026.  The PRA will work with insurers to support their plans for implementation.
• By March 2025 firms must be able to demonstrate that they can remain within impact tolerances for all their important business services throughout severe but plausible disruptions.  Thereafter, the PRA expects Boards and Senior Managers to monitor and manage operational, cyber security and third-party risks using appropriate standards and best practices.
• The PRA notes that not all insurance firms have yet to fully embed the PRA’s expectations as set out in Supervisory Statement 3/19 (Enhancing banks’ and insurers’ approaches to managing the financial risks from climate change) – particularly in respect of scenario analysis and risk management. The PRA will consult on an update to SS3/19 during 2025.

Authored by Kirsten Barber.