The Prudential Regulation Authority (PRA) announced proposals to treat funded reinsurance more like other investments held by UK life insurers, aiming to align capital requirements and strengthen industry resilience. Funded reinsurance, where insurers pay a large upfront premium to an offshore reinsurer that invests in assets, currently requires capital of 2‑4 % of annuity liabilities, compared with 11‑15 % for similar investments. The new rules would raise the capital charge for an average funded reinsurance deal to about 10 %, better reflecting counterparty default risk. The PRA estimates current exposure is around £40 billion and that the changes will reduce incentives for insurers to rely on funded reinsurance and encourage more direct investment in the UK economy. The proposals apply to new business from 1 October 2026, not to existing transactions.
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Summary adapted from the Bank of England website (https://www.bankofengland.co.uk ).
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