PRA sets 2025 priorities for UK BPA insurers - striking the balance between growth and resilience – LCP

In particular, the PRA notes its continued focus on BPA insurers’ use of funded reinsurance (“FundedRe”), where it believes the current growth has the potential to lead to systemic risks if not properly controlled. The PRA set out its expectations for the use of FundedRe in July 2024 and now notes that the BPA insurers are not yet fully meeting these expectations. Some firms have individual counterparty FundedRe exposures that could see them falling below their solvency risk appetite in the event of a reinsurer default – although they would still meet their regulatory Solvency Capital Requirement.

It is perhaps to be expected that it will take time for the BPA insurers to meet PRA expectations in full, and we are reassured that the PRA anticipates rapid progress will be made this year to address remaining gaps. A FundedRe stress is included in the 2025 Life Insurance Stress Test (“LIST 2025”) exercise that is due to be published at the end of the year. This will help the PRA to assess and compare exposures across the market. However, the FundedRe aspects will not be disclosed publicly at a firm level, meaning it won’t provide visibility of FundedRe exposures and sensitivities for individual BPA insurers. We have been calling for greater disclosure of FundedRe exposures for some time and are hopeful that the insurers will voluntarily disclose greater detail in their year-end results that will be published in March.”