1.      Introduction

On 15 January 2026, the UK Prudential Regulation Authority (PRA) published the insurance priorities letter[1] which sets out published its supervisory priorities for 2026. The PRA reiterates an increasingly dual focus: maintaining robust prudential standards amid ongoing geopolitical uncertainty and heightened sovereign risk, while also advancing its secondary objective of supporting the UK’s international competitiveness, innovation and long‑term growth.

While much of the agenda will feel familiar from previous years, the 2026 letter is notable for how explicitly it frames the supervisor’s expectations in a competitive market: sound risk management should not be weakened in response to commercial pressures. Three cross‑cutting themes emerge:

• The PRA is clear that competitive intensity—whether in the bulk purchase annuity (BPA) market or in softening non‑life lines—must not result in degraded pricing discipline, optimistic modelling, or thinner controls.
• Several priorities reprise long‑standing supervisory themes: data quality, model governance, operational resilience and cyber preparedness, alongside implementation deadlines on liquidity reporting and solvent exit planning.
• Across multiple topics—funded reinsurance (Funded Re), evolving investments, delegated authority underwriting, and new ownership structures—the PRA’s message is consistent: robust, proportionate governance at legal‑entity level is the baseline expectation, including clear accountability and conflict management.

Key regulatory milestones and deadlines for the insurance sector for 2026[2] are summarised in the timeline below. Some of these initiatives are discussed in the following sections.

2026 Supervisory Priorities: Key Timeline

2.     Life Insurance Priorities

Uncertain macroeconomic conditions continue to drive demand for pension saving, de‑risking and long‑term investment, positioning life insurers as key providers of financial stability. The PRA’s supervisory objective remains that the sector meets this demand sustainably—through effective policyholder protection, firm safety and soundness, and support for long‑term investment in productive assets.

This approach is reflected in the Solvency UK reforms implemented in 2024 and the PRA’s subsequent build‑out of those reforms, including the Matching Adjustment Investment Accelerator. The PRA’s message is that reforms are intended to facilitate investment and growth without diluting prudential standards.

BPA: competition, pricing discipline and contractual complexity

Within this context, the BPA market remains a particular supervisory focus. The PRA recognises BPA’s role in delivering predictable long‑term outcomes for pension schemes but emphasises that the long‑dated nature of these risks—combined with more complex and evolving investment strategies—amplifies the consequences of weak pricing, governance or risk transfer.

The PRA remains concerned that competitive intensity in BPA, including new entrants and alternative capital, may erode pricing discipline or risk management standards. It expects firms to maintain robust internal frameworks and controls, particularly where more complex transaction features are deployed.

A specific 2026 focus will be solvency‑triggered termination rights in BPA transactions. The PRA states it will revisit how firms have responded to its earlier communication on these clauses to ensure the risks are properly recognised and managed by firms and boards.

Funded Re / asset‑intensive reinsurance): policy action signposted

The letter also continues to emphasise Funded Re (often referred to as asset‑intensive reinsurance). While acknowledging that Funded Re can broaden access to capital and asset classes, the PRA is clear that these arrangements can introduce material prudential risks if not structured, governed and managed appropriately.

Following industry engagement since September 2025 (and for a number of years prior to that) and the latest Supervisory Statement SS5/24[1] on Funded Re published in October 2025, the PRA signals that further policy action is likely, with an update expected in Q2 2026 (as noted in the timeline). Boards should therefore be prepared to evidence prudent governance, effective risk transfer and resilience under stress.

Evolving investment strategies: liquidity, leverage and credit risk

Changing market conditions have encouraged some firms to increase their use of structured, synthetic and private‑market investments, which can introduce additional liquidity risk and potential leverage. The PRA expects insurers to understand aggregate cash‑flow and collateral demands, articulate clear risk appetites and limits, and test exposures under stress.

The PRA aims to gain deeper visibility through new liquidity reporting requirements, which take effect from 30 September 2026. Following implementation, the PRA indicates it intends to deepen supervisory assessment of insurers’ liquidity profiles.

Alongside liquidity, the PRA highlights credit risk management as investment strategies evolve—particularly where firms expand into private credit or new geographies. This aligns with the Bank of England’s planned system‑wide exploratory scenario (SWES) in 2026, which will look at how private capital flows could influence market behaviour and financial stability.

New ownership and capital structures

The PRA continues to observe additional capital and new ownership structures entering the life market. While supportive of diversity and competition, it reiterates that alternative structures do not dilute expectations of long‑term prudence, and it places weight on strong legal‑entity governance and the management of group conflicts of interest. The PRA is also exploring and in consultation with industry on Alternative Capital solutions for life insurance through DP2/25 published in November 2025.[2]

3.      General Insurance Priorities

For general insurers, the PRA highlights a continuing softening of the underwriting cycle across many lines, including in parts of the London Market. In this environment, boards are expected to maintain underwriting discipline and ensure pricing and reserving remain adequate despite competitive pressure.

Internal model assumptions: underwriting optimism under scrutiny

A specific supervisory concern is that some firms’ internal models assume future underwriting performance improvements that are not supported by historical experience—risking understatement of solvency capital requirements.

In 2026, the PRA will intensify engagement with firms exhibiting the most material gaps between assumed and realised profitability. Where firms cannot robustly justify their assumptions, the PRA signals readiness to use the Solvency UK toolkit to ensure capital requirements are not compromised.

Exposure management and delegated authority underwriting

Data quality remains foundational to sound underwriting and prudential risk management, yet the PRA continues to observe weaknesses in exposure monitoring across parts of the market. Firms are expected to invest in systems, tools and models that remain fit for an evolving risk landscape; the PRA will engage directly where practices fall short.

The PRA also flags the growth of delegated authority underwriting as a risk area. It notes that some firms’ strategies for using these arrangements lack clarity, increasing the risk of inadequate pricing and reserving. Firms are therefore expected to strengthen oversight, clarify strategic intent, monitor performance closely, and plan credible exit options where arrangements prove persistently unprofitable.

Stress Testing: The DyGIST Exercise

A major focus for 2026 will be the Dynamic General Insurance Stress Test (DyGIST), a semi-live, market-wide exercise designed to test crisis response capabilities and coordination. As per the timeline, the live exercise will occur in May 2026, with sector-level results to be published in December 2026. This represents a significant supervisory event for the general insurance sector.

4.      Cross‑Sectoral Priorities

The PRA's expectations extend across both life and general insurance, focusing on foundational risks and emerging challenges that affect the entire sector.

Operational resilience and cyber risk

Operational resilience remains a core prudential expectation, embedded in firms’ governance and risk culture. Boards are expected to consider resilience implications when launching new products, upgrading IT systems or outsourcing material services. Following the 31 March 2025 SS1/21 milestone, firms should deepen scenario testing—particularly with critical third‑party providers—while addressing legacy technology risks and managing transformation and cloud adoption carefully.

Cyber risk remains elevated. The PRA continues to emphasise not only prevention, but rapid detection, effective response and timely recovery capabilities, treating cyber preparedness as integral to overall operational resilience.

Solvent Exit Planning

2026 marks a key implementation deadline for the PRA’s solvent exit regime, as shown in the timeline. All in-scope firms must prepare and submit a Solvent Exit Analysis (SEA) by 30 June 2026. This analysis must be proportionate to the firm’s risk profile and business model. The PRA will review SEAs and engage where further scrutiny is required, viewing credible exit planning as a marker of sound forward-looking governance.

Artificial intelligence (AI)

Unlike previous years, the PRA expressly highlights the increasing use of AI. Its tone is balanced: AI is framed as an enabler of innovation and efficiency, but also as a source of novel and amplifying risks (including data quality, third‑party dependency and cyber exposure).

Firms are expected to adopt new technologies responsibly, ensuring that deployment does not compromise safety and soundness, data integrity, or fair treatment of policyholders.

Stress testing Integration

Stress testing continues to grow in prominence as a supervisory tool. For life insurers, the feedback from the 2025 Life Insurance Stress Test (LIST) will inform both firm-specific supervision and policy development throughout 2026. For general insurers, the DyGIST exercise in May 2026 is the central stress-testing event. Across the sector, these exercises are designed to move beyond capital adequacy to test governance, decision-making, and market-wide coordination under stress.

5.      Facilitating Competition and Growth

Alongside its core prudential priorities, the PRA reiterates its commitment to supporting its secondary objective of enhancing the UK insurance sector’s competitiveness and growth. The supervisor emphasises that this will be pursued consistently with—not at the expense of—policyholder protection and financial stability.

A key strand of this agenda is modernising the UK insurance landscape. As indicated in the timeline, the PRA will consult on a new UK captive insurance regime in Summer 2026, with a view to launch in 2027, alongside reforms to the Insurance Special Purpose Vehicle framework. In the life sector, the PRA will continue exploring alternative capital solutions that are compatible with long-term liabilities, building on DP2/25.[3]

The PRA also highlights practical supervisory initiatives aimed at reducing unnecessary regulatory friction. These include faster authorisation timelines, enhanced support for small and mid-sized insurers, and the ongoing transition of remaining firms to two-year Periodic Summary Meeting (PSM) cycles to reduce burden and better reflect longer-term supervisory work plans.

6.      Next steps

Overall, the PRA’s priorities for 2026 focus on delivering the core prudential standards that firms are already familiar with.

One notable point is that the letter does not say much about how supervisory actions might influence market behaviour. For example, some in the market question whether stricter expectations around Funded Re could affect consolidation, or whether prudential incentives might narrow investment choices. These wider market effects are difficult to pin down, but they are the types of issues stakeholders increasingly expect regulators to consider—especially as the PRA works to meet both its primary prudential mandate and its secondary competitiveness and growth objective.

Firms should now compare the timeline’s deadlines with their own business plans, making sure boards have oversight and that enough resources are in place to meet the key dates and broader expectations set out for 2026.

_{¹Insurance Supervision: 2026 priorities}

_{²As taken from the Regulatory Initiatives Grid – December 2025}

_{³https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/supervisory-statement/2025/ss524-october-2025.pdf}

_{⁴DP2/25 – Alternative Life Capital: Supporting innovation in the life insurance sector | Bank of England}

_{⁵DP2/25 – Alternative Life Capital: Supporting innovation in the life insurance sector | Bank of England}