The Bank of England's Prudential Regulation Authority (PRA) has set out its supervisory agenda for 2026, with a focus on pension risk transfers, a spring crisis exercise and consultation on a new captive regime.
The regulator said it would increase scrutiny of life insurers operating in the bulk purchase annuity market, where demand has risen as corporations pursue pension buyouts. The PRA noted that heightened activity in this segment could lead to weakened pricing discipline or risk management practices.
To address these concerns, the PRA plans to revisit how firms responded to its earlier letter on solvency-triggered termination rights. The regulator added that it would continue reviewing funded reinsurance arrangements and may consider imposing restrictions on the volume or structure of such transactions.
Internal model governance will also receive attention this year. The PRA said it would engage more closely with insurers where actual profitability diverges materially from modelled assumptions. Firms unable to provide sufficient justification for their assumptions may face further regulatory action, according to the regulator.
A semi-live crisis exercise is scheduled for May, running over three weeks to simulate a market-wide stress event. The exercise is designed to test insurers' crisis response protocols and highlight areas requiring improvement.
The planned exercise follows the PRA's 2025 Life Insurance Stress Test, which demonstrated that the sector maintains strong capital levels. According to Fitch Ratings, insurers with very strong starting solvency positions above 200 experienced some of the largest declines under stress scenarios due to their greater exposure to bulk annuity business.
Implementation of solvent exit planning rules is also due this year. Insurers must submit a Solvent Exit Analysis by 30 June, outlining financial and non-financial resources required and assessing whether their products would be difficult to replace in the market.
The PRA confirmed it would consult on a new captive regime intended to support market innovation, with the regime expected to launch in 2027.
The Association of British Insurers said the priorities provide a clear direction for the sector.
"As ever, we'll be working closely with our members, the PRA, HM Treasury and other key stakeholders to promote a stable and resilient financial system, maintain strong policyholder protection and unlock investment that supports growth across the real economy," an ABI spokesperson said.
