The Bank of England's Prudential Regulation Authority (PRA) has fined UK Insurance Ltd (UKI) £10.6 million for miscalculations that overstated the motor insurer's Solvency II position in 2023 and 2024, the first enforcement case to use the regulator's new Early Account Scheme (EAS).
The fine was reduced by 50% from £21.25 million after UKI made early admissions and agreed to settle under the EAS.
UKI is the principal underwriting vehicle for Direct Line Group (DLG), which became part of Aviva plc following the completion of Aviva’s acquisition of DLG in July 2025.
According to the PRA’s final notice, UKI miscalculated elements of its Solvency II balance sheet for two consecutive years, leading it to overstate its solvency position to both the regulator and the market.
The error stemmed from ineffective preventative and detective controls and resourcing issues in the finance and actuarial functions. It went undetected by DLG’s internal controls “for a significant period of time” before being identified and disclosed by DLG in August 2024. Direct Line subsequently restated its 2023 Solvency II own funds and solvency capital ratio, confirming the group remained above its risk appetite after correction.
Aviva, which did not own DLG during the period covered by the miscalculation, has described the matter as historical. It said the issue “relat[es] entirely to a period before Aviva completed its acquisition of DLG in July 2025”, and that it has moved to enhance the financial reporting control environment within the former DLG business since completion.
The PRA concluded that UKI breached its obligations under Solvency II and the PRA Rulebook to maintain adequate systems, controls and governance around regulatory reporting. Although the firm did not fall below its capital requirements, the regulator stressed that inaccurate solvency reporting can mislead supervisors, markets and policyholders about an insurer’s financial resilience and risk profile.
The UKI case is the first to use the PRA’s Early Account Scheme, introduced in 2024 as part of a broader update to the Bank of England’s enforcement approach.
Under the scheme, firms under investigation can provide an early, detailed factual account of the issues in return for an enhanced settlement discount of up to 50% on any financial penalty.
The PRA said UKI was allowed to participate in the scheme and that DLG and, subsequently, Aviva had cooperated “in an exemplary manner”. That cooperation, alongside early admissions and agreement to resolve the case, qualified the firm for the maximum reduction, halving the fine from £21.25 million to £10.6 million.
The outcome provides an early indication of how the EAS will operate in practice and the size of discount available where firms move quickly to investigate problems, self‑report and remediate control failings.
The fine comes as Aviva integrates DLG and reshapes how the acquired business is treated for capital purposes.
In January, Aviva confirmed that the PRA had approved a request to revoke Direct Line’s Solvency II partial internal model for UKI and Churchill Insurance. From Dec. 31, 2025, capital requirements for these entities are being calculated on the standard formula, allowing the businesses to be consolidated into Aviva's group solvency calculation on a standard-formula basis.
The move simplifies Aviva’s modelling landscape in the near term and is seen as a step towards potentially migrating the former DLG operations onto Aviva’s internal model over time. Market commentary has also noted that, set against more than £500 million of synergies targeted from the DLG deal, the £10.6 million penalty is financially manageable but underlines the need for strong local controls in acquired entities.
The action against UKI comes amid heightened PRA scrutiny of insurers’ models, data and governance as the UK moves through its “Solvency UK” reforms. The regulator has already consulted on restating and adapting Solvency II requirements post‑Brexit, including changes to the risk margin and internal model approval processes.
In recent supervisory communications, the PRA has highlighted rapid growth in pension risk transfer (bulk annuity) business as a key focus, pointing to the strain that large, complex transactions can place on capital, asset–liability management and operational capacity. It has also drawn attention to funded reinsurance and other complex capital solutions, flagging further policy work in 2026, and has warned that internal models showing material gaps between actual and modelled profitability will face greater challenge.
The PRA has indicated it will step up engagement with firms whose models show persistent optimistic bias or unexplained deviations from experience and will consider additional supervisory or enforcement action where insurers cannot provide robust justification for their assumptions.
