Navigating the PRA’s 2025 Supervisory Priorities: A Roadmap for Insurers

Breaking Down the PRA’s 2025 Priorities – Key Focus Areas:

1. Solvency UK Implementation and Other Policy Reforms The PRA will prioritise ensuring that Solvency UK reforms are implemented and embedded. Following its consultation on proposed reforms to the UK Insurance special purpose vehicle (ISPV) regulatory framework (closing February 2025), the PRA expects to issue its final policy (with a specific timeline not yet confirmed, but expected around mid-2025). This will be a crucial milestone for insurers to follow in ensuring full regulatory compliance.

2. Bulk Purchase Annuity (BPA) Market Developments, Including Funded Reinsurance Firms should consider the PRA’s July 2024 supervisory statement on funded reinsurance (SS5/24). The PRA’s view is that more work is needed, and expects rapid progress from firms. In particular, the PRA will include a funded reinsurance recapture scenario in the 2025 life insurance stress test (LIST).

3. Cyclicality in the General Insurance (GI) Market Insurers should remain vigilant regarding changes in pricing conditions. Natural catastrophe and cyber underwriting risks continue to be PRA priorities, and firms must ensure their underwriting and reserving strategies reflect current market realities.

4. Stress Testing The LIST 2025 exercise, launching later in February, will provide valuable insights into the financial resilience of the largest firms operating in the UK life insurance sector. Disclosure of individual firm results and aggregate results is expected by Q4 2025.

5. Liquidity Resilience The PRA’s focus is on improved liquidity reporting, and it will engage with firms on its proposals in CP19/24. The PRA encourages insurers to sign up early for the Bank of England’s contingent Non-Bank Financial Institution (NBFI) repo facility (CNRF).

Firms will also recall that in 2024, the PRA conducted a thematic review of life insurers’ liquidity risk appetites. The PRA will continue to follow up with firms on this in 2025.

6. Solvent Exit Planning for Insurers The PRA will begin to engage with insurance firms on the final policy regarding solvent exit planning for insurers (PS20/24) to support understanding of its expectations. This will be in preparation for the requirements that come into force in June 2026.

7. Operational Resilience, Cybersecurity, and Third-Party Risk The deadline of 31 March 2025 marks the end of the transition period for in-scope firms to comply with the FCA’s enhanced operational resilience requirements. The PRA expects insurers to continue working toward that deadline, ensuring that boards and senior management functions (SMFs) are actively monitoring and managing risks arising from digital transformation and vendor relationships. The PRA also anticipates the release of thematic findings from the latest Cyber Stress Test, which should be reviewed carefully by firms. Additionally, a PRA and FCA consultation on ICT and cyber risk management policy is expected in H2 2025.

8. Climate Risk Management The PRA has identified that firms are yet to fully embed its climate-related expectations, particularly in terms of scenario analysis and risk management. Further engagement with firms is planned for 2025, and the PRA is also preparing to consult on an update to its supervisory statement on enhancing banks’ and insurers’ approaches to managing financial risks from climate change (SS3/19).

Each of these priorities places significant ongoing demands on insurers, from tightening internal controls to ensuring greater transparency and reporting efficiency. The challenge lies in balancing regulatory adherence with available resources and operational agility.

With the PRA reinforcing its focus on long-term financial stability, insurers must act now to avoid reactive compliance strategies that drain resources and expose firms to regulatory risk.

Embedding Regulatory Reforms into Business Operations

The transition from Solvency II to Solvency UK requires more than policy adjustments; it demands a cultural shift towards sustained regulatory alignment. Insurers must establish clear governance structures, with cross-functional teams dedicated to embedding Solvency UK requirements into investment decisions, capital management, and risk reporting.

Strengthening Risk and Reserving Strategies

With increased scrutiny on BPA transactions and reserving assumptions, insurers need to enhance their risk modelling frameworks. The PRA has highlighted concerns over optimistic profitability assumptions in general insurance underwriting—this means firms must ensure internal models are stress-tested against real-world claim trends and economic volatility.

Automating Compliance and Reporting Processes

The scale of regulatory demands could make manual compliance unsustainable for many insurers. Digital transformation is key to ensuring accuracy, consistency, and efficiency in reporting. Automated systems can help insurers track and validate risk exposures, meet data governance requirements, and align internal controls with regulatory expectations.

Reviewing Appointed Representative (AR) Arrangements

The FCA’s enhanced scrutiny of Appointed Representative (AR) models has already impacted the market, and the PRA is expected to maintain pressure on firms to ensure ARs operate with appropriate oversight. Insurers must review existing partnerships to assess risk exposure, compliance processes, and governance frameworks. A structured due diligence and monitoring approach can help mitigate regulatory risks and protect against potential supervisory interventions.

As insurers continue to navigate the PRA’s evolving regulatory landscape, the emphasis will remain on strengthening resilience, enhancing governance, and embedding forward-looking risk management practices into daily operations.

So, as you dust off your resolutions and dive into another year of opportunities, remember that the PRA’s “Dear CEO Letter” is less of a surprise and more of an annual tradition – like the office birthday cake you didn’t ask for but always end up sharing. It’s a reminder that while the year may be new, the regulatory challenges remain just as persistent.

But, waiting for a regulatory review to identify weaknesses is a high-risk approach. Early action is critical to meeting the PRA’s expectations and maintaining compliance in an increasingly complex environment. Regular internal audits and third-party assurance reviews that focus on areas such as cyber resilience, reserving adequacy, and capital management will allow firms to stay ahead of supervisory interventions.