PRA Publishes Plans to Support Resilience in the Life Insurance Industry

CP8/26 – Funded reinsurance
Consultation paper 8/26
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Published on 29 April 2026
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Contents
Privacy statement
1: Overview
Structure of the CP
Implementation
Responses and next steps
2: Background
3: The PRA’s proposals
Summary
Counterparty default adjustment (CDA) calculation Assigning a CQS for the CDA calculation Definition of funded reinsurance Expectations for firms entering into or holding funded reinsurance arrangements Other options considered 4: Cost benefit analysis (CBA) Baseline without policy changes Balance sheet and capital impacts of proposed policy changes Benefits Costs Conclusion 5: PRA objectives analysis 6: Other legal requirements ‘Have regards’ analysis Impact on mutuals Equality and diversity Appendices

Privacy statement
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When you respond to this consultation paper, please tell us in your response if you agree to the publication of your name, or the name of the organisation you are responding on behalf of, in the PRA’s feedback response to this consultation. Please make it clear if you are responding as an individual or on behalf of an organisation. Where your name comprises ‘personal data’ within the meaning of data protection law, please see the Bank’s Privacy Notice above, about how your personal data will be processed. Please note that you do not have to give your consent to the publication of your name. If you do not give consent to your name being published in the PRA’s feedback response to this consultation, please make this clear with your response. If you do not give consent, the PRA may still collect, record and store it in accordance with the information provided above. You have the right to withdraw, amend or revoke your consent at any time. If you would like to do this, please contact the PRA using the contact details set out below. Responses can be sent by email to: CP8_26@bankofengland.co.uk. Alternatively, please address any comments or enquiries to:
Insurance Policy Division
Prudential Policy Directorate
Prudential Regulation Authority
20 Moorgate
London
EC2R 6DA
1: Overview
1.1 The Prudential Regulation Authority (PRA) has developed targeted and proportionate
proposals that address the most significant risks to its objectives arising from continued growth of funded reinsurance exposures. These are also expected to support the long-term resilience of the UK life insurance market. Funded reinsurance usually involves a collateralised reinsurance contract, which transfers both asset and liability risks from a portfolio of annuities to a reinsurer, often based offshore. Opens

1.2 In recent years, UK insurers’ funded reinsurance exposures have increased significantly,
reflecting the growth of the bulk purchase annuity (BPA) market. As noted in a September 2025 speech, the PRA considers that the current regulatory treatment of funded reinsurance does not appropriately reflect the underlying risks and is not aligned to that of economically similar assets. This misalignment currently encourages insurers to rely excessively on these arrangements to support their BPA activity.
1.3 The PRA is concerned that continued growth in funded reinsurance exposures could lead
to a rapid build-up of underestimated risks. This could impact the safety and soundness of UK insurers and policyholder protection and threaten the stability of the UK insurance industry. As illustrated in the 2025 Life Insurance Stress Test (LIST 2025), the recapture of funded reinsurance arrangements from just a single counterparty could have material adverse impacts on firms’ capital positions, even with the relatively small exposures on the books at YE24.
1.4 The risks associated with funded reinsurance have also been identified by international
institutions such as the International Association of Insurance Supervisors (IAIS) and International Monetary Fund (IMF). Insurance regulators in the Netherlands and the US have also recently taken actions focused on insurers’ use of funded reinsurance-like arrangements (see Chapter 2).
1.5 The PRA is proposing changes to the calculation of the counterparty default adjustment
(CDA) for funded reinsurance under the rules applicable to UK Solvency II firms (hereafter referred to in this consultation as Solvency UK), bringing the treatment of funded reinsurance closer to that of economically similar assets. The PRA considers that the proposed changes would better reflect the underlying risks, reduce incentives for excessive use of funded reinsurance and ensure that future use of these arrangements matches the actual risks they carry. These changes would not apply to arrangements where all the risks covered are fully transferred to the reinsurer on or before 30 September 2026.
1.6 The PRA has sought to establish a simple and pragmatic approach that is risk sensitive,
would be consistently applied across the industry, and materially addresses the current misaligned economic incentives around funded reinsurance. The proposals have also been designed to minimise implementation costs for firms.
1.7 This consultation paper (CP) sets out the PRA’s proposed rules and expectations in
respect of firms’ funded reinsurance arrangements under Solvency UK. The proposals in this CP would result in changes to:

• the Technical Provisions – Further Requirements Part of the PRA Rulebook (Appendix 1);
• the PRA Rulebook Glossary; and
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1.8 The policy proposals included in this CP are:
1.9 This CP is relevant to Solvency UK firms, the Society of Lloyd’s and its members and
managing agents. The CP is also relevant to insurance and reinsurance undertakings that have a UK branch (third-country branch undertakings) when they hold, or are intending to enter into, funded reinsurance arrangements. This CP will refer to these collectively as ‘insurers’ or ‘firms’ unless otherwise specified.
1.10 The PRA has considered the costs and benefits associated with these proposals
compared to the baseline of maintaining current policies and expectations and considers that the benefits outweigh the costs. Details of this analysis are included in Chapter 4.
1.11 The PRA has a statutory duty to consult when introducing new rules (FSMA s138J), or
new standards instruments (FSMA s138S). When not making rules, the PRA has a public law duty to consult widely where it would be fair to do so.
1.12 The PRA has consulted the Cost Benefit Analysis Panel on the cost benefit analysis
included in this CP. The PRA also held industry roundtables on potential policy changes in this area with UK insurers in 2025 and discussed the topic with the Insurance Practitioner Panel (IPP) in March 2026. The PRA has taken the feedback from these groups into account in designing the proposals set out in this CP.

• Supervisory statement (SS) 5/24 – Funded reinsurance (Appendix 2).
• a definition of ‘funded reinsurance’ within the PRA Rulebook Glossary;
• a change to the calculation of the CDA applied to funded reinsurance arrangements;
• requirements for assigning credit ratings and credit quality step (CQS) mapping for the
  purpose of calculating the CDA of funded reinsurance arrangements;
• a savings provision where the rules would not apply to funded reinsurance arrangements
  where all risks have been fully transferred to the reinsurer on or before 30 September 2026;
• certain additional exceptions to the rules for specific arrangements that the PRA considers
  not to give rise to the prudential risks noted above;
• expectations for firms in applying the new CDA calculation; and
• incidental adjustments to existing expectations for firms entering into or holding funded
  reinsurance arrangements.
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1.13 In carrying out its policymaking functions, the PRA is required to comply with several
legal obligations. The analysis in this CP explains how the proposals have had regard to the most significant matters, including an explanation of the ways in which having regard to these matters has affected the proposals. Structure of the CP
1.14 This CP is structured as follows:
Implementation
1.15 The PRA proposes that the implementation date for the changes put forward in this CP
to be applied to the insurers’ calculations would be 1 July 2027. The new rules would not apply to funded reinsurance arrangements where all the risks covered have been fully transferred to the reinsurer on or before 30 September 2026. Responses and next steps
1.16 This consultation closes on Friday 31 July 2026. The PRA invites responses to the
proposals set out in this consultation. Please address any comments or enquiries to CP 8_26@bankofengland.co.uk.
1.17 When providing your response, please tell us whether or not you consent to the PRA
publishing your name, and/or the name of your organisation, as a respondent to this CP.
1.18 Please also indicate in your response if you believe any of the proposals in this CP are
likely to impact persons who share protected characteristics under the Equality Act 2010, and if so, please explain which groups and what the impact on such groups might be.

• Chapter 2 – sets out the background to the policy changes;
• Chapter 3 – provides details of the proposed changes to rules and expectations;
• Chapter 4 – provides the Cost Benefit Analysis (CBA) performed for these proposals;
• Chapter 5 – explains how the proposals are expected to impact the PRA’s objectives; and
• Chapter 6 – sets out how the proposals have had regard to the most significant of the
  PRA’s applicable legal obligations, as well as providing the impact of the proposals on mutuals and equality and diversity. Opens

2: Background
2.1 In recent years, the PRA has seen a growing appetite for the use of funded reinsurance
arrangements in the UK life insurance market to support the writing of BPA business. At first, these arrangements were used only on a very limited basis, however, as the BPA market has grown, their use has become more common. In recent years, about 15% of new BPA business has been ceded via funded reinsurance arrangements.
2.2 The PRA performed a thematic review of insurers’ use of funded reinsurance over
2022-2023. The PRA concluded that there was evidence of material shortcomings in areas such as collateral portfolios and the potential impact of recapturing liabilities and set out its conclusions in a letter to CROs.
2.3 Subsequently, the PRA issued SS5/24 – Funded reinsurance, setting out expectations
for firms entering into funded reinsurance arrangements in terms of risk management, solvency capital requirement (SCR) modelling and the structuring of deals. This was accompanied by another letter to CEOs, which set out the PRA’s intention to consider whether further action may be appropriate if the risks funded reinsurance posed to its objectives were not mitigated. The Bank of England’s (the Bank) Financial Policy Committee also highlighted the potential systemic risks related to funded reinsurance in its November 2024 financial stability report.
2.4 As noted in the recent funded realignment: balancing innovation and risk speech,
and the Insurance Supervision: 2026 priorities letter to CEOs, the PRA has continued to monitor firms’ approaches to funded reinsurance. It has also considered whether the existing Solvency UK framework provides the right treatment for these arrangements. While some improvements in firms’ risk management have been noted, growing use of funded reinsurance and general trends of increased risk-taking have continued.
2.5 The PRA notes that many funded reinsurance counterparties have similar credit focused
business models, which might be correlated to each other and to broader credit conditions. In addition, the PRA has observed trends of higher proportions of illiquid and private credit￾related assets being accepted in collateral arrangements for funded reinsurance arrangements.
2.6 The PRA is concerned that these market dynamics and backdrop, if not properly
addressed, might lead to a rapid build-up of risks in the UK life insurance market through an underestimation of the counterparty risks on UK cedants’ balance sheets and increased correlation of exposures. In the event of a market downturn that significantly impacted the Opens

private credit markets and affected funded reinsurance counterparties, this could result in widespread recaptures of liabilities by UK insurers. Firms would also be at risk of recapturing less, or lower quality, collateral assets than expected.
2.7 The PRA also understands some firms have been looking to structure new funded
reinsurance arrangements with lower levels of longevity risk transfer, while still benefitting from the treatment of these arrangements as reinsurance. This has further highlighted the favourable treatment of funded reinsurance compared to economically similar assets.
2.8 Under Solvency UK, there are material differences in how risks associated with
reinsurance are treated compared to risks arising from directly held assets in annuity portfolios. The PRA considers that the current regulatory treatment of funded reinsurance is not aligned to that of economically similar assets and does not appropriately reflect the underlying risks of these arrangements. This discrepancy gives rise to incentives to channel investments via funded reinsurance, instead of being made directly by UK annuity firms.
2.9 For short-term liabilities, the discrepancy mentioned above is not material due to the
much lower impact of the underlying assets on the value of the liabilities and reinsurance assets. Accordingly, the PRA does not consider the different treatment to be inappropriate for most forms of reinsurance.
2.10 The larger value of the reinsurance recoverables on the Solvency UK balance sheet
associated with funded reinsurance also makes the approach used to calculate this value more material compared to other forms of reinsurance. In addition, funded reinsurance also often differs from other forms of more traditional reinsurance due to the monoline structure and significant asset risk exposures of the counterparties, which is often correlated to the collateral quality.
2.11 For the reasons set out above, the PRA considers that the current regulatory treatment
of funded reinsurance materially underestimates the associated risks and creates misaligned incentives to use these arrangements excessively. This can lead insurers to build up concentrated exposures in complex reinsurance structures, including indirect exposures to illiquid and private credit-related assets, as opposed to direct investments in better understood assets. The PRA considers that this also leads to competitive distortions in the BPA market and may be driving a wider misallocation of capital.
2.12 The PRA also notes that, as demonstrated by the financial crisis of 2008, analysis of
such complex exposures and judging how safe illiquid assets and collateral really are is very subjective and uncertain. The PRA considers that rapid increases in such complex, difficult￾to-understand and hard to analyse exposures could make the UK insurance sector more Opens

fragile. This could create bigger risks for the entire market and potentially pose a risk to its primary objectives of promoting the safety and soundness of regulated firms and ensuring an appropriate level of policyholder protection.
2.13 International institutions such as the International Association of Insurance
Supervisors,[1] International Monetary Fund,[2] and Bank for International Settlements[3] have identified structural shifts in the global life insurance sector. These shifts include insurers increasingly making use of cross-border funded reinsurance arrangements (also referred to as asset-intensive reinsurance, AIR). These organisations have observed that this growth may be driven by opportunities for capital arbitrage or jurisdictional differences in supervision or capital frameworks. They have also warned about the risks that come with more complex and concentrated financial arrangements, and with insurers investing more in alternative assets, private loans, and reinsurers backed by private equity.
2.14 Other supervisory bodies have also recently taken measures focused on insurers’ use of
funded reinsurance. The Dutch central bank has issued regulations requiring Dutch insurers to obtain prior consent before entering into any funded reinsurance arrangements if these could involve assets being held outside of the European Economic Area.[4] In the US, the National Association of Insurance Commissioners has recently adopted measures requiring additional cash flow testing for some life insurers using funded reinsurance.[5]
2.15 In developing the proposals in this CP, the PRA has reflected industry feedback,
including industry roundtable discussions held in 2025[6] and an IPP meeting in March 2026. The PRA has sought to take a proportionate approach in designing the proposals, focusing on the most material risks to the long-term stability of the UK insurance market that may arise from future growth in funded reinsurance exposures. The PRA has also aimed to avoid introducing requirements that are overly theoretical, spuriously granular, or unduly costly to implement. 3: The PRA’s proposals Summary
3.1 The PRA considers that the economic and capital treatment of funded reinsurance (as
opposed to typical reinsurance) should be materially similar to that of economically similar investments. footnote Opens

3.2 As such, the PRA is proposing changes to how funded reinsurance arrangements are
valued as reinsurance assets on firms’ Solvency UK balance sheets. The changes would better align the calculation of the CDA applied to funded reinsurance arrangements to the treatment of default and downgrade risks on directly held assets.
3.3 The PRA expects that these proposals would be straightforward to implement and would
be capable of being applied consistently across the industry. The PRA also expects the proposed changes to materially address the underlying issues of differing treatments of asset risk and misaligned economic incentives, while still being sensitive to the underlying features of specific funded reinsurance counterparties and collateral agreements.
3.4 The PRA also expects that addressing this misalignment will reduce incentives currently
driving excessive use of funded reinsurance. This has led to UK insurers’ investments being deployed by reinsurers, often based offshore, with investment practices oriented towards non￾UK assets. The proposals are expected to remove the uneconomic incentive to employ funded reinsurance and therefore lead to lower use of funded reinsurance and an increase of direct investments. Compared to the counterfactual, this is expected to lead to an increase in UK productive investments as those are more likely to arise from direct investments by UK insurance firms.
3.5 For the average existing funded reinsurance transaction, firms currently hold capital worth
2–4% of the value of the underlying annuity liabilities, compared to 11–15% for similar investments. Under the proposals, the PRA estimates that the capital held for the average existing funded reinsurance transaction would shift to around 10%,[7] which materially addresses the inconsistency but recognises that there are some differences between funded reinsurance and similar investments.
3.6 The PRA is not currently proposing new rules or changes to existing expectations for
firms’ calculation of the SCR associated with funded reinsurance arrangements. Chapter 3 of SS5/24 will continue to set out how the PRA expects firms to assess the risks associated with funded reinsurance in their SCR, alongside clarifications of how the PRA expects firms to calculate the CDA under stress. There may be some minor consequential updates to guidance on firms’ existing reporting requirements for funded reinsurance to support firms’ implementation. Counterparty default adjustment (CDA) calculation
3.7 Under Solvency UK, the ceding of liabilities via reinsurance involves creating an asset
representing the value of the amounts recoverable from the reinsurance contract. The value of this asset must be adjusted to reflect expected losses due to the default of the counterparty (the counterparty default adjustment, or CDA).[8] For funded reinsurance, the amounts footnote footnote Opens

recoverable are often significantly larger than is the case in other reinsurance structures, reflecting that these can involve the transfer of both liability and asset risks. This increases the materiality of the CDA calculation for funded reinsurance transactions.
3.8 Firms are required to calculate the amounts recoverable from reinsurance contracts,
including CDA, in a manner consistent with the wider valuation of technical provisions,[9] and using a market consistent approach.[10] The CDA is calculated as the expected present value of the change in cash-flows that would arise if the counterparty defaulted.[11]
3.9 Compared to the calculation of the Solvency UK fundamental spread (FS), which captures
the risks retained by annuity firms in direct investments, the calculation of reinsurance recoverables (including the CDA) is very different, high-level, and principles based. For example, there is no specific reference to the risk of losses due to downgrades of credit quality.
3.10 The PRA proposes to introduce a requirement that the CDA applied to funded
reinsurance arrangements must be equal to the FS for financial corporate bonds corresponding to the credit quality step (CQS, see also paragraphs 3.13–3.24 below) and maturity of each of the funded reinsurance cashflows. This is considered appropriate given insurers’ primary exposure under a funded reinsurance arrangement will be to the reinsurance counterparty, which are by nature financial institutions.
3.11 The PRA considers that this requirement would ensure that the valuation of funded
reinsurance contracts on the Solvency UK balance sheet better reflects the underlying retained risks to the cedant from a funded reinsurance contract. The proposal also ensures the cedant’s allowance for the retained risks is consistent with how it allows for retained risks on other economically similar investments.
3.12 The PRA recognises that using the financial FS is a simplified calibration for the credit
risk associated with funded reinsurance arrangements, and that arguments could be made for a higher or lower CDA (eg reflecting concentration and wrong way risk, or additional security). However, the financial FS is both straightforward for firms to apply and is consistent with the approach for other assets held by insurers. The PRA also notes comments received from industry stakeholders in PS13/24,[12] setting out views that there was insufficient data to calibrate funded reinsurance specific stresses, and that firms often struggle to use market￾consistent inputs for the CDA calculation, such as credit default swap prices. footnote Opens

Assigning a CQS for the CDA calculation
3.13 The PRA notes that there are currently no credit rating methodologies for funded
reinsurance arrangements. Some parallels can be drawn with other widely rated asset types, such as covered bonds or collateralised loans, but there are also significant differences. For example, covered bonds often involve clearly ring-fenced backing assets and standardised legal frameworks that allow for the cover pool to continue to support payments even after issuer default. Such frameworks do not apply to funded reinsurance. The PRA has also observed that some funded reinsurance arrangements include features that are not typical of other assets, such as contractual rights for counterparties to substitute assets in the collateral pool.
3.14 For the purposes of carrying out the calculation set out in paragraph 3.10, the PRA
proposes the following approach to determine the CQS for a funded reinsurance transaction. Firms should start with the insurer financial strength rating (IFS)[13] issued for the reinsurer by an external credit assessment institution (ECAI) and apply up to three independent upward notches. Where an ECAI IFS rating is not available for a funded reinsurance counterparty, the PRA proposes firms use CQS 3 less one rating notch.[14]
3.15 The IFS reflects the ECAI’s assessment of the reinsurer’s ability to pay policyholder
claims, and incorporates a range of factors including business diversification, the strength of the local regulatory regime, and balance sheet strength. Industry stakeholders highlighted these factors as important differentiators of the additional security provided by being a reinsurance policyholder. IFS ratings are provided by most large ECAIs for the majority of existing funded reinsurance counterparties and are generally one to three notches higher than unsecured debt ratings for that counterparty.
3.16 The PRA considers that funded reinsurance arrangements may exhibit collateral
contractual features that justify using a higher credit quality step than the reinsurance counterparty’s IFS rating. The PRA therefore proposes to allow firms to adjust the CQS implied by the ECAI-issued IFS upwards by up to three independent notches. These notches reflect common credit enhancing funded reinsurance contractual features that align with the notching criteria used for rating covered bonds and structured finance instruments.
3.17 The PRA notes that for collateral to be an effective mitigant, the cedant must have
certainty that it can access and control the collateral if the reinsurer defaults or otherwise fails to perform its contractual duties. To qualify for any upward notches, the collateral arrangements must therefore meet the criteria set out in Solvency Capital Requirement – Standard Formula Chapter 3G8 in the PRA Rulebook. These criteria include:

• the firm transferring the risk has the right to liquidate or retain the collateral in a timely
  footnote footnote
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3.18 The PRA proposes that firms determine the notches based on the contractual terms of
funded reinsurance arrangements. The PRA considers this to be a preferable and more proportionate to an alternative approach that links the assessment to firms’ actual exposures, noting that requiring in-depth periodic retesting of the collateral would create additional operational complexity and cost.
3.19 The proposed criteria for each of the notches, and their rationale, are:
manner in the event of default;

• the collateral does not comprise securities issued by the counterparty or a related
  undertaking of that counterparty;
• where collateral is held by a custodian or other third party, the assets are segregated and
  individually identifiable; and
• the segregated assets are not used to pay, or to provide collateral in favour of, any person
  other than the firm (or as directed by the firm).

1. Adequate collateral: The presence of an adequate amount of collateral isolated from the
   counterparty balance sheet is a key component of counterparty risk mitigation. Where collateral fully covers the premium at inception and is adjusted thereafter only for changes in market conditions and claims experience, the insurer is less exposed to immediate losses than an uncollateralised policyholder. The PRA considers that this increase in protection warrants firms recognising a one-notch upgrade.
2. Absence of a need for collateral transformation: The PRA has observed that credit
   rating methodologies for covered bonds often test whether collateral requires rebalancing or ‘transformation’ to meet the contractual funded reinsurance cashflows. Examples may include selling certain assets to obtain immediate access to cash to make payments. Where such transformation is required, the collateral is exposed to market risks that can undermine its risk-mitigating effects. The PRA proposes to use the quality of the cashflow matching of the worst-case collateral portfolio and the level of matching adjustment (MA) eligibility as proxies for assessing the need for collateral transformation. Where the collateral is 100% MA eligible in line with the firm’s permissions and any mismatch between the cashflows of the collateral and the contractual cashflows of the funded reinsurance do not give rise to material risks, the PRA proposes that firms recognise a one-notch upgrade.
3. Credit enhancing nature of collateral: The PRA recognises that, in some cases, high￾quality collateral can be a credit-enhancing factor for a funded reinsurance arrangement.
   However, this is only considered to be material and relevant if the contractually permitted credit quality of the collateral is no lower than that of the counterparty. As a simple Opens

3.20 To assist firms in understanding how to judge the quality of matching and assess the
average rating of the collateral portfolio, the PRA proposes setting out additional guidance in a new Chapter 5 of SS5/24.[16]
3.21 The PRA also proposes establishing an expectation that a firm’s approach to
determining the credit quality step for funded reinsurance arrangements is documented and approved by a Senior Management Function (SMF) holder, in most cases the CRO. This SMF approval would focus on the key areas of judgement and include any adjustment made for notching as a result of paragraphs 3.18–3.19 above. The PRA also proposes establishing an expectation that the methodology be presented to the firm’s governing body, and to add expectations on the specific elements of the process that should be documented to Chapter 5 of SS5/24.
3.22 The PRA is not proposing any further notch upgrades or any potential notch downgrade
over the IFS, but notes that a number of additional risk factors relevant to funded reinsurance were considered in developing the policy. These risk factors are not explicitly captured above but could arguably justify negative notches being applied to the IFS implied CQS. Funded reinsurance collateral is typically more illiquid, exposed to market risks to larger extent and more complex in nature than that observed in structured finance arrangements, involving very long duration and bespoke terms. There are also legal and jurisdiction-specific risks involved in those structures, such as resolution regimes, which are untested in stress.
3.23 The PRA considers that the overall approach set out above is a pragmatic method for
assigning credit ratings to funded reinsurance arrangements. It aims to balance recognising the additional security that funded reinsurance contracts may provide with the material uncertainties around how they would be rated by a rating agency and how they could perform in the event of material stresses.
3.24 In particular, the approach should help to ensure that the treatment of funded
reinsurance arrangements on the Solvency UK balance sheet reflects both the strength of the counterparty and any enhancement provided by the specifics of the collateral arrangement. measure, the PRA proposes that firms recognise a one-notch upgrade if the weighted average rating factor of the worst-case collateral portfolio indicates the collateral has a higher credit quality than the counterparty. When making this assessment, the PRA proposes that firms can use internal rating assessments if these are consistent with the internal rating methodology and processes used by the firm for similar directly held assets. Otherwise, the PRA proposes that firms take a prudent approach, such as assigning the unrated assets a CQS of 4.[15] footnote footnote Opens

Under the proposed rules, the PRA expects that risks associated with funded reinsurance will be more appropriately capitalised, and the risk of a potential build-up of underpriced risks which could create systemic threats to the stability of UK insurance markets will be reduced. The PRA also considers that the proposals would improve incentives to transact arrangements with more creditworthy counterparties and to include strong security features in collateral arrangements, which would reduce the risk of losses in the event of a recapture of a funded reinsurance arrangement. Definition of funded reinsurance
3.25 The PRA proposes that these requirements would apply to life insurers entering into new
funded reinsurance arrangements as cedants, to back annuity or capital redemption liabilities. This would be clarified by the establishment of a formal definition of ‘funded reinsurance’ within the PRA Rulebook, to which the new rules would apply.
3.26 To date, funded reinsurance has primarily been used to back annuity liabilities. However,
the PRA also notes that similar structures leading to a similar build-up of risks could also be used to cede capital redemption business, given these policies have similar long-term asset exposures. Therefore, the PRA proposes that the new rules should also apply to reinsurance used to cede risks related to capital redemption liabilities.
3.27 The PRA notes that some insurance groups use funded reinsurance structures to
manage the distribution and diversification of risks within the group, rather than to transfer risks outside of the group. Where arrangements are entered into between members of the same group and do not result in any increase surplus at group level, the PRA does not consider that these structures have the same prudential risk profile as funded reinsurance transacted with a third party. Likewise, these intra-group structures do not generally pose recapture risks. This reflects the fact that the reinsurer simply holds a mirror portfolio of assets, comprising assets for which the cedant already has MA permissions and which match the ceded liabilities, and are therefore suitable to back UK annuity liabilities. The cedent also typically retains a significant portion of the risks underlying the liabilities, maintaining sufficient ‘skin in the game’ in asset selection. Finally, as the aim of these transactions is the distribution of diversification risks across the group, these intra group transactions do not generate a ‘day one profit’ by creating a reinsurance asset in the cedant’s balance sheet that has greater value than the liabilities transferred. Opens

3.28 Similarly, the PRA notes that in some cases, a reinsurance agreement is used between
parties on a temporary basis to transfer the risks and economic interests related to a portfolio of insurance liabilities in advance of a Part VII transfer of insurance business. These short￾term arrangements are not considered to lead to the same ongoing risk exposures as long￾term transactions.
3.29 Therefore, the PRA proposes that the new requirements would not apply to
arrangements held on an intra-group basis subject to these meeting certain criteria based on the factors set out in paragraph 3.27. The PRA also proposes that the new requirements would also not apply to arrangements that are set up as part of a transfer of insurance business, where the arrangement is between the two entities involved in the transfer and is only expected to be in place while a legal transfer of the business is concluded. The criteria for these exceptions would be set out in new proposed definitions of ‘intra-group quota share funded reinsurance’ and ‘Part VII reinsurance’ in the PRA Rulebook Glossary. Scope of application
3.30 As highlighted in the funded realignment speech, the PRA’s concerns around funded
reinsurance reflect the potential systemic threat that a further build-up of underpriced risks beyond current levels could lead to. Given that the PRA considers that the current treatment of funded reinsurance is inadequate given the associated risks, it would be in line with the PRA’s usual approach to apply the proposals to the stock of funded reinsurance arrangements as well as any new transactions. However, the PRA notes that funded reinsurance arrangements already in place are very long term, that it is not possible to reprice in-force contracts, and that such a change could be disruptive for the market.
3.31 As such, the PRA considers it appropriate to provide a savings provision for the existing
stock of transacted funded reinsurance arrangements. This pragmatic approach will still ensure clear and consistent application of the proposed rules while avoiding undue market disruption to transactions that are already on the books, were negotiated on the basis of previous expectations and present long-term commitments.
3.32 Further, when considering the scope of application of the proposals to funded
reinsurance arrangements that are set to be transacted between the date of publication of this CP and the date of implementation (proposed to be 1 July 2027), the proposals take several factors into account:

• minimising further accumulation of risks that arise from funded reinsurance by correcting
  the misaligned incentives in the regulatory treatment in a timely way;
• avoiding market disruption to transactions that are well advanced at the time of publication
  of the CP, were negotiated on the basis of previous expectations, and that firms have Opens

3.33 The PRA considers that the best way to balance these goals is a savings provision for
business written before a certain date. The PRA proposes that the savings provision should apply to business where the risks covered are fully transferred on or before 30 September
2026. Any business written subsequently would be in scope of the new rules, which would
apply from the proposed implementation date (1 July 2027).
3.34 The PRA considered other options, eg a transitional measure for some or all of the stock
of funded reinsurance arrangements and to apply the proposals to arrangements entered into after the publication of this consultation. However, the PRA considered that it was not necessary to transition long-tail business already transacted and which, at current volumes, does not present a risk to PRA objectives. Likewise, applying the proposals or a transitional measure to transactions that are materially advanced could be disruptive and add undue uncertainty and complexity to firms’ business practices.
3.35 The PRA notes that it expects the volume of new funded reinsurance arrangements to
be transacted before 30 September 2026 to be consistent with firms’ existing plans. The PRA also notes that it expects firms to adhere to existing rules, including the Prudent Person Principle and the expectations set out in SS5/24, in entering into new funded reinsurance arrangements ahead of the savings provision date. Expectations for firms entering into or holding funded reinsurance arrangements
3.36 The PRA proposes to add a new chapter to SS5/24, setting out expectations for firms
subject to the new rules. These include expectations around how firms should determine whether any or all of the one-notch upward adjustments to the reinsurers’ IFS-implied CQS should be applied to a given funded reinsurance arrangement. Expectations are also proposed around the governance of the process for determining the appropriate credit quality step.
3.37 The PRA also proposes to amend SS5/24 to clarify that for the calculation of the CDA in
stress, the published FS may be used, rather than requiring a forward-looking FS. The PRA considers that this reflects a pragmatic and proportionate approach with respect to internal models and partial internal models for funded reinsurance arrangements in scope of the new rules. The PRA recognises that there may be some indirect impacts on firms’ SCR invested substantial costs in; and

• minimising the uncertainty and market distortion that could arise before an upcoming
  change in regulatory treatment.
  Opens

calculations from the proposed changes to the base balance sheet treatment of funded reinsurance arrangements in scope of the new rules. The PRA will continue to monitor firms’ treatment of funded reinsurance in SCR calculations as part of its ongoing supervisory work.
3.38 The proposals also include a number of minor consequential amendments to the existing
chapters of SS5/24 to reflect the new definition of funded reinsurance in the PRA Rulebook, and to clarify other expectations for firms in light of the proposed change in rules. Other options considered
3.39 In developing the proposals in this consultation, the PRA has considered a number of
other alternative policies on firms’ use of funded reinsurance. One alternative was to reflect the economic similarities of funded reinsurance to a combination of a longevity swap and investment arrangement via introducing the concept of ‘unbundling’ funded reinsurance arrangements into two distinct reinsurance and investment components. Following further analysis and feedback from industry stakeholders, the PRA has moved away from this idea due to the potential operational complexity of unbundling, and the associated modelling work and assumption setting that would be required.
3.40 In line with comments made by a number of industry stakeholders, including at the
roundtables, the PRA considers that policies targeting changes to the CDA proposed in this CP may be a more straightforward method to achieve a similar regulatory outcome. The proposals would also limit costs to firms and ensure a more consistent application across the industry.
3.41 The PRA also considered adding volume limits on the amount of annuity liabilities that
firms could cede via funded reinsurance arrangements to the policy package, as a way to mitigate the financial stability implications of growth in these types of transactions. However, the PRA also recognised that limits may not take full account of the range of risk profiles present in funded reinsurance transactions.
3.42 Instead, the PRA concluded that it was appropriate to directly address the micro
prudential regulatory foundations of the way funded reinsurance is allowed for in firms’ regulatory balance sheets. The PRA considers it likely that this proposed policy would moderate the current misaligned economic incentives to engage in greater volumes or riskier transactions, such that macro measures like limits may not be necessary. The PRA will monitor the impact of these proposals, if implemented, alongside other analysis such as the 2028 life insurance stress test exercise. If these indicate that further action is required to address the build-up of risks associated with funded reinsurance arrangements, the PRA may consider consulting on the introduction of volume limits. Opens

4: Cost benefit analysis (CBA)
4.1 The PRA has considered the costs and benefits associated with these proposals
compared to the baseline of maintaining current policies and expectations in the context of the BPA market and the expected growth of use of funded reinsurance.
4.2 The PRA consulted the Cost Benefit Analysis Panel on its CBA. The Panel considered the
PRA’s analysis and provided valuable feedback, which is reflected in this CBA. The core suggestions made by the panel and the PRA’s actions as a result are:

• Expected policy impacts on competition – the Panel supported the PRA’s assessment
  that addressing the misaligned incentives arising from how funded reinsurance is treated under the current regulations would facilitate effective competition in the BPA market. It also recommended that the CP contain additional detail on how specific underlying drivers of competition in the BPA market are expected to be affected. The PRA has provided additional details on different segments of the BPA market and how the proposed changes would affect different firms depending on their individual circumstances in paragraphs 4.24–4.26.
• How to present estimates – the Panel suggested adjustments to the presentation of
  several elements of the CBA to ensure that these brought out key features of the policies, focused on the most material factors, and were clear to all stakeholders. The PRA has addressed these points throughout the CBA chapter, including by providing additional commentary on the expected impacts on operational costs to firms (paragraphs 4.20–4.21) and on capital requirements (paragraphs 4.30–4.32).
• Relative size of costs and benefits – the Panel also recommended that the CBA more
  clearly explain why the benefits are expected to outweigh the costs, and noted that recently published life insurance stress testing results could provide a useful indication in this regard. The PRA has included additional analysis setting out views on which costs and benefits are most material, including analysis of the LIST 2025 results (paragraphs 4.16–4.18), and set out why the benefits are expected to outweigh the costs overall (paragraph 4.35).
• BPA market details – the Panel recommended that additional detail be provided on the
  use of funded reinsurance over time and the relative size of the BPA market, to clarify the rationale for taking policy actions. The CBA now contains additional analysis of these details in paragraphs 4.3–4.5. Opens

Baseline without policy changes
4.3 The PRA notes data from market observers , which estimates that there will be
around £40 billion – £50 billion of BPA business written annually in the UK over the next decade. At first, funded reinsurance was used only on a very limited basis to support BPA business, but as the market has grown, its use has become more common. Absent any policy changes, and in line with insurers business plans, the PRA expects market trends of c.15% of BPA liabilities being ceded via funded reinsurance to continue over this period. This would lead to funded reinsurance exposures at UK firms growing from c.£40 billion to c.£110 billion.[17]
4.4 BPA business is estimated to be around a third of UK life insurers’ non-linked liabilities, ie
c.£300 billion of c.£850 billion total non-linked life insurance technical provisions. The PRA expects that BPA business could represent over half of UK life insurers’ non-linked liabilities in a decade, with funded reinsurance exposures growing commensurately.
4.5 The PRA has observed lower rated funded reinsurance counterparties being used by UK
insurers in recent years, and increased risk-taking in collateral arrangements. Absent any policy changes, the PRA expects these trends to continue, accelerating a build-up of uncapitalised risks and increasing the level of distortion in competition in the BPA market. Balance sheet and capital impacts of proposed policy changes
4.6 The PRA has used illustrative examples to estimate the balance sheet and capital
impacts of the proposals for the average current funded reinsurance counterparty. This has been calculated as the mean result for counterparties rated A+ and AA-, both eligible for one additional notch; treated as between AA- and AA under the proposed rules.
4.7 To illustrate the potential range of impacts under the proposed rules, the PRA has also
estimated the impact on an AA rated counterparty (with strong collateral controls, eligible for all additional notches and treated as AAA rated under the proposed rules), and a BBB rated counterparty (with weak collateral controls, not eligible for any additional notches and treated as BBB rated under the proposed rules).
4.8 The proposals would introduce a requirement to calculate the CDA based on the
Solvency UK Fundamental Spread. The PRA estimates that the new CDA would reduce the value of a funded reinsurance asset on firms’ Solvency UK balance sheet (which reflects the best estimate of the underlying annuity liabilities) by c.7% for the average current counterparty. Results are estimated as c.3% and c.13% for AA and BBB rated counterparties respectively. Firms’ current approaches are estimated to lead to reductions that range from below 0.5% to c.2%. Opens footnote Opens

4.9 Although the proposals do not directly amend the SCR for counterparty risk, the PRA
expects that the stressed change in the CDA would also increase under the proposals. The precise impact is likely to vary significantly between firms, as most BPA writers use their own internal models reflecting their specific risk exposures to calculate their SCR.
4.10 The PRA estimates that applying an SCR stress equivalent to a one-letter downgrade of
the funded reinsurance counterparty could lead to SCR requirements as a percentage of the underlying annuity liabilities (separate to the impact on the CDA, and before allowing for diversification) of c.2% for the average current counterparty. Equivalent figures are estimated to lead to requirements of c.2% and 14% for AA and BBB rated counterparties respectively. Current SCR requirements for funded reinsurance arrangements will vary between firms, but the PRA estimates most firms currently hold around 1% of the asset value.
4.11 In aggregate, for an average FundedRe deal, the PRA expects total valuation and
capital charges of around c.10% of the best estimate of the underlying annuity liabilities, after including the CDA, the SCR and the risk margin. This compares to the 2–4% previously noted in 2025 industry roundtable discussions.[18]
4.12 For a hypothetical new BPA transaction, with 15% of liabilities ceded via funded
reinsurance, the PRA estimates that the proposals would lead to an overall increase in initial required backing assets, reflecting the higher CDA and increased SCR, of c.1.5% for deals with the average current counterparty. Results are estimated to be c.0.1% and c.4% for deals using an AA or BBB rated counterparty respectively.
4.13 The PRA notes that there would be significant variability in the impacts estimated above,
and there may also be some small impacts on the risk margin. The impact on best estimate liabilities and SCR would depend on the features of a transaction and how individual firms model exposures and risks. For the SCR, in particular, actual impacts will depend on firms’ specific model calibrations, risk exposures and diversification benefits. The PRA also emphasises that the changes only apply to transactions where risks are transferred after 30 September 2026, and there would be no day-one impact on firms’ balance sheets. Benefits
4.14 The PRA expects that the proposals would have the benefit of preventing a significant
build-up of undercapitalised exposures, by both a reduction in the use of funded reinsurance and an increase in the financial resources used to back future arrangements. The PRA also expects the proposals to incentivise transacting future funded reinsurance with more creditworthy counterparties and establishing stronger collateral controls. footnote Opens

4.15 The PRA also considers that the proposals would ensure that UK insurers are holding a
more appropriate level of capital against the risks associated with funded reinsurance, and will make them more able to withstand scenarios that may lead to a recapture of the underlying liabilities. This in turn reduces likelihood and size of the significant costs that could arise from such a scenario; driven by the disruption of financial services, widespread disorderly recaptures of illiquid assets, or policyholder (and ultimately, UK taxpayer) exposures to compensation costs via the Financial Services Compensation Scheme.
4.16 LIST 2025 tested the year-end 2024 impact of recapturing funded reinsurance
exposures from just firms’ largest single counterparty. This covered £12.3 billion of liabilities – on average 4% of underlying annuity liabilities. A scenario where all firms recaptured exposures with their largest counterparty led to a reduction in SCR coverage ratios of 10 percentage points: a reduction in surplus capital of c.£3 billion.
4.17 The PRA notes that the impact of a recapture event would grow in line with BPA and
funded reinsurance exposures. Actual asset stresses and costs related to transforming collateral assets in a stress scenario may be higher than those assumed in LIST 2025. These factors could increase the impact of an actual future stress on firms.
4.18 The PRA considers that the results of LIST 2025 support the view that, absent any policy
changes, a future crystallisation of the risks associated with funded reinsurance arrangements could materially affect firms, threaten UK financial stability and negatively impact policyholder protection.
4.19 The proposals would also reduce the potential for firms with weaker risk management
standards to gain a short-term pricing advantage by relying on the current treatment of funded reinsurance. This would support the PRA’s secondary objective to facilitate effective competition, including in the BPA market by reflecting firm efficiency and innovation, rather than whether a firm uses a higher proportion of funded reinsurance due to a regulatory under￾pricing of the associated risks. The PRA also expects the proposals to address incentives driving excessive use of funded reinsurance, which have diverted UK insurers’ investments offshore via reinsurers, reducing the amount available to be directly invested supporting UK productive investments. Opens

Costs
Direct costs to firms
4.20 Implementation costs are expected to be low and would only be incurred by firms
entering funded reinsurance transactions after the savings provision date. The proposals have been designed to leverage firms’ existing calculations and analysis. The PRA therefore does not expect material increases in ongoing operational compliance costs or an increase in administrative burdens such as reporting costs.
4.21 The PRA estimates the industry-wide implementation cost to be below £500,000
annualised over a 10-year horizon. This reflects conservative one-off and ongoing cost estimates assuming all firms currently using funded reinsurance (3 large and 6 medium-sized firms), continue to do so on new transactions. This also assumes PRA standard expectations for the cost of implementing a small technological project to update models. To the extent that firms reduce or stop their use of funded reinsurance in light of the proposed policy changes, or can leverage existing models and systems, these costs may be lower, or nil. Direct costs to the PRA
4.22 Additional supervisory costs associated with monitoring compliance with the new rules
are expected to be low, given their straightforward nature. The PRA estimates annualised internal costs of less than £30,000 over a 10-year period. This conservatively assumes the continued use of similar volumes of funded reinsurance on new BPA transactions.
4.23 These costs are expected to relate to reviewing implementation of the proposed policy,
with ongoing supervision of firms’ approaches being more limited, and no assumed new specific technology or systems development. No material changes are expected to broader supervisory costs, given limited proposed changes to supervisory expectations. Firm-level impacts
4.24 The PRA notes that firms use funded reinsurance for a variety of reasons; to assess firm
specific impacts, it is helpful to distinguish between three broad categories of BPA writers:

• Capital constrained firms. These firms use funded reinsurance primarily to reduce capital
  strain when writing new business. The proposals may reduce the extent to which they use funded reinsurance for this purpose, requiring them to either raise additional capital, reduce BPA volumes or adjust pricing.
• Pricing-focused firms. These firms use funded reinsurance to improve pricing
  competitiveness rather than to manage capital constraints. For these firms, the proposals are likely to be managed through a combination of higher premiums and reduced profits on Opens

4.25 The impact of the policy on firms will also depend on their subsequent decisions, for
example reducing use of funded reinsurance, transacting with higher rated counterparties, negotiating stronger collateral terms, increasing BPA prices or holding more assets directly. As such, impacts are likely to vary significantly across the market. The PRA anticipates that firms with more robust capital positions, strong investment sourcing capacity, and greater risk management capability may adapt more easily to the proposed changes.
4.26 The PRA understands that firms that make use of funded reinsurance do not plan to use
it to cede more than c.20-25% of new business premiums. Therefore, the PRA expects that affected firms would still be able to write significant amounts of BPA business and does not anticipate that the proposals would lead to any insurers withdrawing from the market. Market-level impacts
4.27 Although the PRA expects the proposals to lead to a reduction in firms’ use of funded
reinsurance, at a market level funded reinsurance is currently used for only a minority of BPA transactions (c.15% in recent years). The PRA therefore expects the proposals to have a modest immediate impact on overall BPA pricing and volumes.
4.28 The PRA expects that the strong capitalisation of most BPA writers, combined with the
capacity of firms not reliant on funded reinsurance, would support continued availability of BPA solutions at prices attractive to pension schemes.
4.29 The proposals are expected to increase the cost of capital required to back new BPA
deals where these would be backed by funded reinsurance under current policies. This could reduce the profitability of firms currently using funded reinsurance. However, the PRA notes this would only impact a small portion of BPA activity.
4.30 In a scenario where there is no change in firms’ use of funded reinsurance, this could
lead to additional initial new business capital requirements of c.£700 million per year across the market, reflecting the estimates in paragraphs 4.3 and 4.12. This compares to total UK BPA writer own funds of c£80 billion. new business. While this may reduce returns on capital, there may also be offsetting positive impacts arising from the fact that less of the profit on the underlying business is being passed on to funded reinsurance counterparties.

• Firms that do not use funded reinsurance. These firms’ competitive position may
  improve relative to firms that currently rely heavily on funded reinsurance. Opens

4.31 Assuming a 15-year average liability duration and cost of capital of 8%, this implies an
increase in the cost of capital for one year’s new business of c.£60 million across the market. Assuming returns on assets of 5%, the effective cost of capital would be c.£20 million. The PRA notes that it expects firms would reduce the use of funded reinsurance following implementation of the proposals, making these costs to firms lower in practice.
4.32 The PRA further notes that most BPA writers currently hold capital above their long-term
target ranges, with the expectation that this excess capital will support future new business. Considering the five largest BPA writers alone, this excess capital is estimated at c.£17 billion. Deploying this capital may reduce the effective cost of capital and associated costs. Impacts on pension schemes and BPA pricing
4.33 Some firms may pass on the higher capital requirements associated with funded
reinsurance to pension schemes or their sponsor companies through increases to BPA pricing. The PRA expects this effect to be limited given that most BPA transactions do not involve funded reinsurance and competition between providers is expected to remain strong. The PRA also expects the yields firms are able to earn on the assets backing new BPA deals, an important factor for pricing, to be broadly unchanged.
4.34 The PRA notes that the BPA market is highly competitive, with firms typically submitting
best-offer bids against each other. The PRA also notes that funded reinsurance is generally used in a concentrated manner to support bids on specific (typically larger) transactions. Therefore, a direct pricing impact is only expected for particularly competitive deals where one or more bidders would have used funded reinsurance under current policies. Conclusion
4.35 The PRA considers that across a reasonable range of expected scenarios, there are
significant benefits from reducing the likelihood of losses from the crystallisation of risks associated with funded reinsurance and the potential impact of these risks on UK firms and the wider UK economy (as illustrated in paragraphs 4.16–4.18). These expected benefits, in the form of improved sector resilience and enhanced UK financial stability are considered to significantly exceed the expected direct costs of implementing the new policy and indirect costs on firms and pension schemes from increased capital requirements. Furthermore, the PRA expects benefits to effective competition and indirect benefits to UK productive investments. Opens

5: PRA objectives analysis
5.1 The PRA considers that the current regulatory treatment of funded reinsurance does not
appropriately reflect the associated risks and is concerned that this could drive an excessive use of funded reinsurance. Growth in the BPA market leading to increased use of funded reinsurance and exposures to illiquid, difficult to model assets could lead to a build-up of risks that are not appropriately provisioned for. This could become a systemic threat to the stability of the UK insurance market and threaten the PRA’s primary objectives of promoting the safety and soundness of firms and securing an appropriate degree of protection for policyholders.
5.2 The proposals are expected to ensure the risks associated with funded reinsurance are
more appropriately treated under Solvency UK. The PRA expects that this would help avoid a build-up of undercapitalised risks that could otherwise become a systemic threat to the UK insurance market and threaten the safety and soundness of UK insurers.
5.3 As noted in paragraphs 4.16–4.18, LIST 2025 has highlighted the potentially significant
impact that the recapture of current funded reinsurance liabilities could have on UK insurers’ solvency if exposures in the medium term grow as expected. If exposures grow more rapidly, in excess of firms’ current business plans, the impact of a crystallisation of risks associated with funded reinsurance could become even more significant if the regulatory treatment is not changed.
5.4 Therefore, the proposals are expected to materially advance the PRA’s primary objectives
of ensuring the safety and soundness of the UK insurance industry and maintaining policyholder protection. The PRA also considers that the changes would limit the risk of disruptions to financial services.
5.5 The PRA considers that the current regulatory treatment of funded reinsurance introduces
incentives for firms to use funded reinsurance excessively, despite the risks, to outprice their competitors. The proposals are designed to ensure that the treatment of funded reinsurance better reflects the risks associated with specific transactions, drive more consistent consideration of these risks across the market and better align the regulatory treatment of funded reinsurance to that of directly held assets. The PRA considers that these factors would lead to a more level playing field and support the PRA’s secondary competition objective. Opens

5.6 The PRA expects that the proposals would help reduce risks to the long-term stability and
growth of the BPA market, supporting the PRA’s secondary competitiveness and growth objective. The PRA also notes that it has proposed a savings provision that aims to minimise disruption to firms that are already in the process of finalising any new funded reinsurance arrangements and maintain the stability of the BPA market, further supporting this objective.
5.7 Additionally, the PRA considers that the proposals would increase the allocation of UK
insurers’ investments towards UK productive assets. Given the current misaligned incentives driving the use of funded reinsurance, some firms have relied on funded reinsurance excessively. Reinsurers, often based offshore, have deployed the assets transferred in these transactions in global assets markets, including global private credit. The investment practices of these reinsurers is usually oriented towards non-UK assets. By addressing the misaligned incentives, the PRA expects firms to use funded reinsurance to a lower extent, in favour of investing the assets directly, which should increase the allocation to UK productive investments that support the UK economy.
5.8 Firms using funded reinsurance are often able to reduce the costs of writing new BPA
transactions and offer better prices to pension schemes for BPA deals. However, the PRA expects that any impact of the proposals on BPA pricing would be modest, given that the vast majority of BPA business (c.85% in recent years) is currently written without being backed by funded reinsurance. Firms’ risk appetites also generally do not anticipate ceding more than c.20-25% of new business liabilities via funded reinsurance. The PRA also notes that some current BPA pricing where funded reinsurance is used may be artificially low, where the risks associated with these arrangements are not fully reflected.
5.9 The PRA also notes that funded reinsurance is typically used in a concentrated manner
on specific deals, in particular to support larger BPA transactions, rather than evenly across a firms’ whole portfolio. Therefore, only a minority of deals would be directly affected by the proposals. The PRA expects the BPA market to continue to be attractive to firms following the proposals. The high level of competition in the BPA market is also expected to continue, limiting impacts on pricing.
5.10 Given the strong capital position of many insurers active in the BPA market, the PRA
considers that the overall market has sufficient capacity to absorb any downturn in capacity from individual firms. This view is supported by data on market demand and supply from market observers. The PRA also notes that any increase in BPA prices could also increase supply from other firms. Opens

5.11 Therefore, the PRA judges the likelihood of any material negative impacts on prices or
volumes in the BPA market, and consequently the PRA’s secondary for competitiveness and growth objective, to be low. 6: Other legal requirements ‘Have regards’ analysis
6.1 In developing these proposals, the PRA has had regard to the FSMA regulatory principles
and the aspects of the Government’s economic policy as set out in the HMT recommendation letter from November 2024 . The following factors, to which the PRA is required to have regard, were significant in the PRA’s analysis of the proposal:

• The principle that a burden or restriction that is imposed on a person should be
  proportionate to the benefits that are expected to result from the imposition of that burden: The PRA has considered proportionality throughout the design and calibration of the proposed policy. The PRA considers that these proposals are proportionate given the risks inherit in funded reinsurance transactions. Further, the PRA has recognised firms' concerns about the practical implementation of other potential policy approaches, such as ‘unbundling', or requiring new credit rating methodologies to be established. The PRA considers that the proposals being consulted on would be relatively straightforward to implement consistently across firms.
• The desirability of the PRA exercising its functions in a way that recognises
  differences in the nature of, and objectives of, businesses carried on by different persons: The PRA notes that insurers use a wide range of reinsurance structures, and has designed the proposals to focus solely on the types of asset-intensive funded reinsurance that are considered to introduce risks that are not currently treated appropriately. The PRA considers that the risks associated with funded reinsurance are sufficiently different to justify specific policy intervention. The PRA has also designed the proposed policy to reflect the different levels of counterparty credit strength and collateral security provided by different individual funded reinsurance arrangements.
• Recognising the vital contribution of the financial services sector to overall
  economic growth and in supporting the real economy through sustainable lending, and by attracting and mobilising increased investment and encouraging trade: The PRA considers that these proposals would promote the safety and soundness of firms. This in turn would increase confidence in the UK life insurance market and help support the growth of the UK insurance sector and the competitiveness of the UK in the medium￾Opens Opens

6.2 The PRA has had regard to other factors as required. Where analysis has not been
provided against a ‘have regard’ for these proposals, it is because the PRA considers that ‘have regard’ to not be a significant factor for these proposals. Impact on mutuals
6.3 The PRA considers that the impact of the proposed changes to PRA expectations on
mutuals is expected to be no different from the impact on other firms.
Equality and diversity
6.4 In making its rules and carrying out its policies, services, and functions, the PRA is
required by the Equality Act 2010 to have due regard to the need to eliminate discrimination, to promote equality of opportunity, and to foster good relations between persons who share a protected characteristic and those who do not.
6.5 The PRA has considered the equality and diversity issues that may arise from the
proposals in this consultation. The PRA does not consider that the proposals in this CP raise any concerns with regards to equality and diversity. term.

• Maintaining and enhancing the UK’s position as a world-leading global finance hub
  and a destination of choice for international financial services business, including by demonstrating leadership in international regulatory forums: Many international bodies and regulatory forums, including the International Association of Insurance Supervisors, International Monetary Fund and Bank for International Settlements, have noted the recent growth in the use of funded reinsurance arrangements, the risks associated with these structures, and that this growth may be driven by capital arbitrage or jurisdictional differences. In proposing the policy changes set out in this CP, the PRA considers that it is taking timely action in this area, setting out a clear method to address the risks associated with funded reinsurance in a proportionate manner. The PRA will continue to work with international regulatory forums on this topic.
• Efficient and economic use of PRA resources. The PRA considers that the relatively
  straightforward nature of the proposals will help minimise the associated costs of supervision and monitoring compliance. This will help ensure an efficient and economic use of PRA resources that is commensurate with the risks involved.

1. Issues Paper on structural shifts in the life insurance sector (November 2025). Opens
   Opens

Appendices
2. Global Financial Stability Report (October 2023). Opens
3. Shifting landscapes: life insurance and financial stability (September 2024). Opens
4. Assessment of Asset-Intensive Reinsurance Contracts DNB .
Opens
5. Actuarial Guideline LV .
Opens
6. See 29 October 2025 update on the PRA’s Solvency II webpage.
7. This reflects the estimates set out in paragraphs 4.6–4.13.
8. Technical Provisions 11.1 (3).
9. Technical Provisions 11.1 (1).
10. Technical Provisions 2.3 (1).
11. Technical Provisions Further Requirements 24.2 – 24.4.
12. See paragraphs 3.17 and 3.28 of PS13/24.
13. An assessment of the financial strength of an insurer or reinsurer, and its ability to pay policyholder obligations, issued
by an external credit assessment institution and mapped to the CQS as set out in Solvency Capital Requirement – Standard Formula 1D . Opens
14. Equivalent to a ‘BBB-’ rating as issued by many ECAIs. See Solvency Capital Requirement – Standard Formula 1D
.
Opens
15. Equivalent to a ‘BBB-’ rating as issued by many ECAIs. See Solvency Capital Requirement – Standard Formula 1D
.
Opens
16. See Appendix 2.
17. This includes all FundedRe and is a wider definition than LIST 2025, which only captured agreements entered into
between 2016 and 2024. Neither figure includes intra group reinsurance.
18. See 29 October 2025 update on the PRA’s Solvency II webpage.
Appendix 1: PRA Rulebook: Funded Reinsurance Instrument [2026] (PDF 0.1MB)OPENS
Appendix 2: Updates to SS5/24 – Funded reinsurance (PDF 1.5MB)OPENS
©2026 Bank of England
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