Postcards from The Valley of Indecision

I am, ordinarily, a supporter of regulation. 

That support is especially acute when it comes to risk-based capital frameworks. Insurers are socially important entities. We don’t want insurance companies to become insolvent. 

I’ve been a staunch advocate of Solvency II in the 10 years since it was implemented. I’ve eagerly clung onto every word and missive from the UK’s Prudential Regulation Authority (PRA). But a fan though I am, its latest focus on asset-intensive reinsurance raises important questions about how the proposed safeguards could affect the market.

The PRA has said it recognises the value of reinsurance to oil the insurance machine. But one could argue the most recent Consultation Paper (CP8/26) creates some tension with that message.

Asset-intensive reinsurance has been used by several insurers in the UK to help them write more bulk purchase annuity (BPA) business and is typically provided by reinsurers domiciled in Bermuda.  

The PRA first indicated it wasn’t over the moon about this in 2022. It confirmed it was keeping a close eye on UK insurers’ use of asset-intensive reinsurance. For those of us carefully watching the regulatory horizon, that suggested further scrutiny and consultation were likely to follow. But importantly, it wasn’t clear whether they’d do anything further; or, if they did, how extreme that response might be.

Reason for pause 

Bermuda has established itself as a reputable jurisdiction over many decades. It’s the world’s reinsurance marketplace. It has Solvency II equivalence and has jurisdictional alignment with the US insurance regulatory system. This is no regulatory Wild West: asset-intensive transactions are subject to regulatory approval by the Bermuda regulator.  

The latest CP proposes raising capital requirements for UK insurers using asset-intensive reinsurance, which could act as a handbrake on its use. Some market participants I’ve spoken to suggest the proposals may already be dampening appetites for the arrangements.  

And then there are the consequences

At a conference in Bermuda in October 2026, Craig Swan, the CEO of the Bermuda Monetary Authority, talked at length about unintended consequences. His comments were made in a broader context, but the underlying point has some relevance here.

Greater capital requirements could impact UK insurers’ ability to price BPA business effectively, influencing the range of options available to company boards seeking to transfer their pension liabilities. They could also alter the balance between UK and overseas capital participating in the market.

I’m still an avid rule follower

Aberdeen’s compliance department will be pleased to hear that. I’m not about to start tearing up the rule book. But even well-intentioned regulation can have unintended consequences. The challenge for the PRA is therefore one of balance: strengthening safeguards without unnecessarily restricting a reinsurance market that can support capacity and competition in the UK’s BPA sector.