In a letter dated 9th January 2025 from Gareth Truran (Executive Director, Insurance Supervision) and Shoib Khan (Director, Insurance Supervision), the PRA has set out its insurance supervision priorities for 2025. Those who have long memories may observe that the 2025 list is somewhat shorter than the one published in 2024.  In reality what the 2025 priorities do is strike a sensible balance between the enduring supervisory aim for the insurance sector to provide financial protection and security to policyholders in good times and bad, in line with the PRA primary objectives, and the newer secondary objectives around competitiveness and growth. In the current political and economic environment there can be no doubting the pressure that has most likely been felt by the PRA to deliver on those secondary objectives.

2024 summary:

  1. The economic environment
  2. Expansion of the life insurance sector
  3. General insurance sector, reserving risk
  4. Other areas of focus

2025 summary:

  1. Evolution in the insurance industry
  2. Evaluating and maintaining resilience

The letter sets out the PRA thematic priorities, which are intended to complement any firm-specific feedback individual firms may have received in their Periodic Summary Meetings. One noticeable change in tone for 2025 is the early reference to those PRA secondary objectives and its desire to listen to feedback from firms as they evolve their own policy processes. Although these were not the subject of any specific commentary in the 2024 insurance priorities letter, they have already been the subject of much work by the PRA, which published its first annual report on its work back in July 2024.

One major shift is in the area of Solvency II, where the focus has moved from delivery of changes necessary to working with firms to ensure the benefits of the changes are delivered. There is also a subtle change in language that may yet prove to be the signal for more change in this area.

Key priorities for 2025

1.     Evolution in the insurance industry

  • Solvency UK implementation and other policy reforms
    Without any specific commentary, we see the PRA adopting here the language often used anecdotally of ‘Solvency UK’. There is no indication why that has been done now, but perhaps we will see a formal change in language coming soon. In 2025 the PRA intends to prioritise ensuring that these reforms are embedded and deliver on the intended objectives, namely to:
    1. spur a vibrant, innovative, and internationally competitive insurance sector;
    2. protect policyholders and ensure the safety and soundness of firms; and
    3. support firms to make long-term investments to support growth.

Firms will welcome the renewed focus on how Matching Adjustment applications are managed and the proposals to develop a new MA Investment Accelerator. New firms looking to begin operations in the UK will welcome the ongoing commitment to the PRA New Insurers Start-up Unit and those firms with third country branches operating – or looking to operate – in the UK should also benefit from a renewed focus on this growth area.

  • Bulk Purchase Annuity (BPA) market developments, including funded reinsurance
    There is some concern at the rapid evolution in the BPA market and the risks this brings to firms’ pricing discipline and risk management standards with the associated high levels of competition. There is a warning to firms involved in such transactions of the need to ensure their risk management and control frameworks keep pace with changes in business practice and with evolving transaction features. The PRA and Financial Policy Committee have previously expressed concerns that the current growth in funded reinsurance transactions could, if not properly controlled, lead to a rapid buildup of risks in the sector and have the potential to pose systemic risks. The PRA has indicated that, in its view, firms’ own self-assessments show they are not meeting the PRA expectations set out in SS5/24 – Funded reinsurance. With the systemic risk posed by this issue, it should be of no surprise that the PRA has indicated that it expects to see “rapid progress in addressing the gaps” identified against its expectations and firms involved in such transactions should ensure they are urgently addressing those concerns.
  • Cyclicality in the general insurance market
    The PRA indicates that it feels some general insurance firms are making overly optimistic assumptions about their future profitability against a backdrop of continued economic uncertainty, a high level of natural catastrophe losses, elevated geopolitical risks and the evolving nature of cyber threats. Firms are reminded of the contents of the PRA letter of 23rd June 2023 “Follow up to the letter: Insights from PRA thematic review of general insurance reserving and capital modelling” and warned to expect to be requested to “provide justification for their assumptions, particularly where future assumptions differ from prior experience.”. In the cyber underwriting arena, the PRA has indicated it will be undertaking analysis of the new cyber underwriting risk reporting data now available to it and firms are asked to ensure they can identify, quantify, manage, and monitor sources of this risk across the breadth of their general insurance portfolios, including consideration of the robustness and appropriateness of scenario-testing in the context of recent events and emerging risk drivers such as artificial intelligence.

2.     Evaluating and maintaining resilience

  • Life Insurance Stress Test (LIST)
    Due to launch this month, the LIST will provide valuable insights into the financial resilience of the UK’s largest life insurers. Individual and aggregated results are expected to be published in Q4 2025. For the firms involved this will require a high level of engagement with the PRA in the coming months. The remainder of the market will be watching with interest towards the end of 2025 to see what conclusions the PRA reaches and what wider implications may arise.
  • Liquidity resilience
    The PRA remains concerned about the liquidity positions of the largest UK insurance firms and will be seeking to ensure it has more timely, consistent and comparable data on the liquidity positions of those firms to ensure it has a clear and consistent understanding of the resilience of the largest insurers to liquidity shocks.
  • Solvent exit planning for insurers
    The PRA issued its Policy Statement on solvent exit planning at the end of December 2024 and firms will need to ensure they have got their work on this issue mostly complete by the end of 2025. Firms can expect to see engagement from PRA supervisors in 2025 as they seek to ensure firms have a clear understanding of the expectations around the development of their Solvent Exit Analysis (SEA) which must be in place by 30th June 2026.
  • Operational resilience, cyber security and third-party risk
    Firms are reminded not only of the 31st March deadline for the end of the transitional period in relation to Operational Resilience, but also of the need to ensure plans remain ‘living’ documents and are regularly reviewed against the backdrop of any major change programme, investment, when making strategic business decisions, or engaging in new third -party relationships. This should not be news to firms but is a clear reminder of the importance attached to this work by the PRA. If you would like to read more about the background to this transitional phase, it is a topic we considered in some detail as part of our ‘Operational Resilience Assurance Week’ series of articles back in November.

Conclusion

We may have a new Executive Director in charge of the Insurance Supervision team – Gareth Truan took up his role in May 2024 – but the themes for 2025 bear much similarity to 2024, albeit with the work on Solvency shifting from change to delivery and the possibility dangled of a change in language from Solvency II to Solvency UK. There is also perhaps a slightly more nuanced tone – one of engagement and partnership, rather than simply supervision and oversight. It is noticeable that the PRA proactively invites feedback from firms on more than one occasion. It is probably fair to say that the economic and political environment – in the UK and internationally – remains ‘delicate’ and it is an unenviable task that the PRA has to balance its primary objectives around prudence with its secondary growth objectives. The stated priorities seem to strike a reasonable balance in seeking to achieve that goal.

If you have any questions about how the priorities affect your firm, please speak with the author or your usual ICSR contact.

Claire King

Risk & Compliance Director

Advisory & Resourcing

Pin It on Pinterest

Share This