On 15 January 2026, the Prudential Regulation Authority set out its supervisory priorities for UK life and non-life insurers. The PRA's Dear CEO Letter reiterates many priorities from previous years reflecting a continuation of trends in the market including the continued pressures in the bulk purchase annuity (BPA) market, softening underwriting conditions in the general insurance market and continued expectations around operational resilience in an uncertain environment. We outline the key themes which emerge from the letter below.
Life insurance
The PRA remains concerned that competitive pressures in the BPA market may create incentives for firms to weaken their pricing discipline or risk management standards. Firms should ensure that their risk management frameworks and controls remain robust enough to evaluate and manage the risks they assume, particularly as pricing pressures intensify and transaction structures become more complex. In 2026, the PRA plans to revisit how firms have responded to the July 2025 Dear CEO Letter on the use of solvency-triggered termination rights in these types of transactions. As a result of the growing use of funded reinsurance (FundedRe) and on the back of its Dear CEO letter accompanying supervisory statement (SS) 5/24 – Funded reinsurance and various roundtables held in 2025, the PRA is also considering new policy proposals for the regulation of FundedRe and is expected to provide an update on this in the second quarter of 2026.
The PRA also refers to the launch of the Matching Adjustment Investment Accelerator and the results of the Life Insurance Stress Test which assessed sector and firm resilience to adverse scenarios. Looking ahead, the PRA notes that the Bank of England will run a system‑wide exploratory scenario (SWES) in 2026 to assess how private capital flows may affect market dynamics and financial stability.
The PRA notes the growing interest from new capital and prospective investors seeking to enter the BPA market through a range of structures, signalling that the market remains open to new participants. At the same time, the PRA reiterates its expectation that boards and senior management exercise prudent oversight, maintaining robust and independent legal entity governance and effective management of any potential conflicts of interest.
General insurance
Softening in the underwriting cycle across multiple classes has placed pressure on pricing, terms and conditions and reserving levels and has prompted the PRA to warn firms against overly optimistic assumptions in their internal models with respect to future underwriting performance. Firms must preserve disciplined underwriting and ensure pricing and reserving remain accurate irrespective of market trends. In 2026, the PRA intends to increase its engagement with firms showing the most significant gaps between actual and assumed profitability in their internal models. Where firms cannot robustly justify their modelling assumptions, including with reference to historic underwriting performance, the PRA will consider further supervisory action to ensure solvency capital requirements are not materially understated.
The PRA has identified that several firms must enhance data quality and strengthen data standards and continue investing in systems, tools and models to ensure they remain fit for purpose in a changing environment. High‑quality data remains essential to effective prudential risk management.
The Dynamic General Insurance Stress Test, scheduled for May 2026, will operate as a semi‑live crisis simulation over a focused three‑week period. Participating firms should prepare by reviewing and updating their crisis‑management playbooks and by testing internal communication and coordination arrangements.
Cross-sectoral
The PRA expects operational resilience to be embedded within firms’ underlying risk culture and to form an integral part of decision‑making. Boards and senior management should routinely assess how strategic developments, such as new products, IT upgrades and outsourcing arrangements impact a firm's operational resilience. The PRA also expects firms to continue enhancing the quality and rigour of their operational‑resilience testing.
A new priority for the PRA is the increasing use of AI across the sector. While recognising the opportunities presented by AI, the PRA emphasises that these technologies also introduce novel risks including the potential amplification of existing issues such as poor data quality and heightened reliance on third‑party providers. The letter also notes the implementation of solvent exit planning reforms this year, with insurers in scope being required to prepare a Solvent Exit Analysis by 30 June 2026.
Innovation
The PRA concludes by reiterating its commitment to supporting innovation within the insurance sector and to adopting a more innovative regulatory approach itself. Its priorities for 2026 include developing the new UK captive regime, on which it intends to consult in summer 2026 with a view to launching the regime in 2027, progressing reforms to the Insurance Special Purpose Vehicles framework and streamlining the authorisation process. The PRA also confirms that firms currently on an annual cycle will transition to a two‑year Periodic Summary Meeting (PSM) cycle.
Should you wish to discuss the implications of the PRA's priorities for your organisation, please contact the authors of this briefing or your usual DACB contact.
