Video transcript: The PRA's insurance supervision priorities for 2026

Transcript

Ric Lea: The PRA has recently published its annual Dear CEO letter, setting out its insurance supervisory priorities and focus areas for the year ahead. The PRA has a very clear, overarching message. Insurers need to make sure that their governance, risk management, and controls keep pace with the changing market conditions and evolving business models.

For life insurers, the PRA is keeping the spotlight on the ever-growing bulk purchase annuity market. The growth and competition in the BPA market is a good thing, but the regulator is turning its eye to the risk of weakening pricing discipline, and it will expect to see strong governance controls in place around this. Add on to this, the familiar messages around funded reinsurance have been reiterated this year.

The PRA are still not convinced by how robustly these arrangements are being managed, and so it's determined that it needs to take harder policy action. It's considering a range of options for this, and I'll be providing further details in the second-half of this year.

The PRA are also keeping a close eye on liquidity through its new reporting requirement for large insurers, investment strategies, and the governance and management of conflicts of interest in group structures, especially where we're seeing more diverse sources of capital and entity ownership in the market. On the general insurance side, the attention is on underwriting and reserving discipline. The PRA's got some concerns that underwriting assumptions and model outputs might be too optimistic, and it's seeing some weaknesses in exposure management data and delegated authority oversight.

An important message also to note is that in May of this year, the PRA is going to be running the dynamic GI stress test, which is a three week semi-live market-wide crisis simulation.

There's also some important cross-sector priorities. Operational resilience is still high up on the agenda, and firms are expected to address legacy technology, cyber risk, and third-party dependencies. And the PRA have also highlighted some upcoming milestones, including solvent exit analysis, where the deadline is in June of this year and firms should already be well underway planning for that.

At the same time, the PRA is signalling a more proportionate and efficient supervisory approach overall. This includes moving periodic summary meetings to a two year cycle, working much more closely with Lloyd's in supervising the London market, and continuing work on the secondary objectives around competitiveness, growth and innovation, through aspects like developing a UK captive insurance regime.

Overall, the PRA's 2026 priorities reinforce the need for disciplined execution of the basics, governance, risk and resilience, while adapting to a more competitive and innovative evolving insurance market.