The Prudential Regulation Authority (PRA) has rolled out its strategies aimed at balancing innovation, resilience, and risk management for 2025.
One of the developments in the regulatory landscape is the introduction of Solvency UK, a streamlined framework aimed at reducing administrative burdens and encouraging new entrants into the market.
The PRA views these changes as an opportunity to increase competition while maintaining the financial security of insurers. Additionally, new regulations will help insurers better manage risks related to long-term investments.
The bulk purchase annuity (BPA) market is another area of attention for the PRA. As this sector expands, the regulator is focused on ensuring that insurers are effectively managing their risks and finances.
The PRA encourages general insurers to maintain strong underwriting standards and ensure adequate reserves are set aside for claims, particularly in light of ongoing economic uncertainty.
In 2025, life insurers will undergo a stress test to assess their ability to withstand significant economic downturns. Alongside this, new rules will require insurers to strengthen their strategies for managing liquidity and other financial challenges. Operational risks, particularly those related to system failures and cyberattacks, are also a priority for the PRA. Insurers will be required to meet stricter guidelines to handle such disruptions and ensure business continuity. These new requirements will come into effect by March 2025.
Further, environmental risk management is another area where the PRA is urging insurers to take action. The regulator has expressed concerns about slow progress in addressing climate-related risks and plans to issue further guidance to ensure that insurers incorporate these factors into their long-term strategies.
“We welcome the PRA’s 2025 insurance supervision priorities, much of which focuses on the UK BPA insurers given the rapid growth in buy-in volumes. The PRA seeks to strike a balance between the need for increased capacity to meet high demand without compromising risk management in a way that weakens the protection for current and future policyholders," said James Silber, partner at LCP and co-lead of the insurer's financial risk team.
Silber highlighted the PRA’s concern over the use of funded reinsurance (FundedRe) by BPA insurers, noting that if not properly managed, this could present systemic risks.
As the PRA pushes forward with its priorities, how will the insurance industry adapt to these changes? Let us know your thoughts in the comments.
