PRA Dear CEO letter on 2025 supervisory priorities for insurance firms

On 9 January 2025, the PRA published a Dear CEO letter outlining its 2025 supervisory priorities for the UK insurance sector.  This provides an insight into the regulator’s timeline for the year ahead and the key focus areas that firms should bear in mind.

Key PRA priorities include:

• 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 9a specific timeline is not specified but we are expecting this around the middle of the year). 
• Bulk purchase annuity (BPA) market developments, including funded reinsurance: Firms should bear in mind the PRA’s July 2024 supervisory statement on funded reinsurance (SS5/24). Comparing firms’ self-assessment against the expectations set out therein the PRA’s view is that further work from firms is needed, and the PRA expects rapid progress from firms. The PRA will include a funded reinsurance recapture scenario in the 2025 life insurance stress test (LIST).
• Cyclicality in the general insurance (GI) market: Firms should remain vigilant to potential changes in pricing conditions. Natural catastrophe and cyber underwriting risks continue to be PRA priorities.
• Stress testing: The LIST 2025 exercise will launch later this month and will provide valuable insights into the financial resilience of the largest firms operating in the UK life insurance sector, with disclosure of individual firm results and aggregate results (expected in Q4 2025). 
• Liquidity resilience: The focus is on improved liquidity reporting, and the PRA will engage with firms on its proposals in CP19/24. The PRA encourages relevant insurance firms to sign up early for the BOE’s contingent NBFI repo facility (CNRF). Firms will recall that over 2024, the PRA conducted a thematic review of life insurers’ liquidity risk appetites -feedback has been provided to firms, and the PRA will continue to follow up on this work in 2025. 
• Solvent exit planning for insurers: The PRA will begin to work with insurance firms within the scope of its final policy on solvent exit planning for insurers (PS20/24) to support understanding of its expectations, ahead of the requirements being in force from June 2026. 
• Operational resilience, cyber security and third-party risk: 31 March 2025 signals the end of the transition period for in-scope firms to comply with the FCA’s enhanced operational resilience requirements and the PRA expects insurance firms to continue working towards that deadline. It also expects boards and SMFs to monitor and manage the risks arising from transformation journeys and the use of appropriate standards and vendor best practices. Turning to the cyber threat landscape, insurers should look out for the thematic findings from the latest Cyber Stress Test due to be published this year.  A PRA & FCA consultation on policy related to the management of ICT and cyber risks is expected in H2 2025.
• Climate: PRA thematic work shows that firms are yet to fully embed its climate expectations, with further progress required, particularly on scenario analysis and risk management. The PRA will engage further with firms in 2025 and is also planning to consult on an update to its supervisory statement on enhancing banks' and insurers' approaches to managing the financial risks from climate change (SS3/19), to support firms' progress in this area.

You can find a copy of the Dear CEO Letter here.

In case you missed it, we have produced a guide in which we bring together 25 items for insurers’ and pension providers’ radars over the coming twelve months. Download our 25 for 2025 guide here.