Good morning and thank you for the invitation to speak today.

As attendees at this conference, you will be well aware that the flow of bulk purchase annuity (BPA) deals is at near record levels and has been widely forecast to remain high. Although the broader global economic and financial market outlook currently looks more uncertain than when many of these forecasts were made, many of the underlying drivers behind BPA transactions are likely to remain.

I want to speak today about three important aspects of our current work at the PRA to respond to these trends.

First, supporting investment. As the BPA sector grows, so does the contribution insurers can make to UK economic growth through long-term productive investment. I’ll discuss our work to facilitate this, while ensuring this growth can be achieved safely and sustainably.

I will update on our reforms to the Matching Adjustment (MA) regime, and our proposal for an investment accelerator to support speedier investments by insurers. These reforms illustrate how we are pursuing our secondary growth and competitiveness objective as we implement Solvency UK.

Second, maintaining resilience. As insurers’ balance sheets grow in both size and complexity, they must manage the corresponding risks effectively, and make sure that risk management approaches adapt where needed to reflect changing market dynamics. I will update on two examples: our supervisory work on solvency triggered termination rights in BPA transactions, and funded reinsurance. Insurers’ focus on credit risk is also particularly important at present given the current global risk environment.

Finally, improving transparency. We have implemented new safeguards within Solvency UK to promote good risk management practices and to improve accountability and transparency. One important example is our life insurance stress test. I’ll talk through our aims for the exercise and what you can expect to see from us later this year.

Supporting investment

Over the last year we have continued to see growth in BPA transaction volumes, given high demand for corporate defined benefit scheme risk transfer. Notably, there have been a larger number of smaller transactions, while new entrants have helped provide additional capacity. So it’s not surprising that market forecasts anticipate that the number of buy-in transactions might exceed 300 for the first time this year, and that the combined annual value of buy-ins and buy-outs might now exceed £60bn by 2027^{footnote [1]}.

There has been considerable focus in recent months on how pension scheme capital and investment can best be deployed to support pension scheme members, employers and the UK economy. Your conference agenda reflects this, with sessions on alternative options such as run-on solutions alongside more traditional BPA transactions with insurers. I’ll focus today on the BPA transfers into the insurance sector given the PRA’s role.

When I talk about supporting investment, it’s important to note that a transfer of business from a pension scheme to an insurer does not in itself change the aggregate level of long-term investment available to the economy – the pension promises and the assets backing them just move from one part of the financial sector to another. But as the recipient of the transfers, the opportunity for UK insurers to help fund long-term investment certainly does increase.

Solvency UK reform implementation

Supporting insurers to provide long-term capital to support growth was a central objective of the Solvency UK regulatory reform package last year. And the insurance sector committed publicly to use the reforms to invest £100bn in UK productive assets over the next ten years^{footnote [2]}.

So what has been our early experience under Solvency UK? Our reforms delivered a simpler and more flexible framework for the PRA and the insurance sector to work within. We also made it easier for new insurers to enter the market.

For life insurers, the reforms also widened the range of assets which could benefit from the MA, and made it quicker and simpler to secure the permissions needed to get MA benefit on these assets, supporting the PRA’s secondary competitiveness and growth objective.

As well as the policy reforms, we have also established a dedicated MA Permissions Team to speed up our engagement in practice. There are good reasons why supervisors need to approve insurers’ use of the MA, given it confers a significant financial benefit on insurers^{footnote [3]}. But our new team has streamlined our approach so that where firms need to get PRA approval, we can give them as quick a response as possible, while still providing assurance that MA requirements are met.

Before our reforms, MA applications typically required an extended period of prior engagement between firms and the PRA. We now offer insurers a much more focused application readiness review, and aim to give feedback within weeks to help ensure firms give us the information we need to make a quick decision.

Since Solvency UK went live last June, we have completed nine of these application readiness reviews, giving feedback to firms much more quickly – in 18 working days on average. We have had positive industry feedback on this new approach.

We have also completed ten full MA application reviews during this time – all well within our six-month target^{footnote [4]}. Four of these went through our streamlined approach with an average time to decision of just over two months. We aim to reach decisions on MA applications as quickly and efficiently as possible whilst recognising some larger or more complex applications need longer to make sure the MA eligibility conditions are met. Our six-month target allows us enough time to capture these more complex cases where necessary, but we are also delivering on our commitment to complete reviews within a shorter timeframe where possible.

We also have an active pipeline of other applications, and we are starting to see firms use the new flexibility to include assets with highly predictable cashflows in the MA. Although many of the examples we have seen so far relate to investments overseas, we are also starting to see a few more relating to the UK.

I said last year that with the PRA having completed these reforms successfully, it was now for the insurance sector to make as much use as possible of the reforms to fulfil their investment commitments^{footnote [5]}. We will of course reflect on how the funding needs of the UK economy might evolve in future. But since our reforms took effect in June last year, I believe insurers have all they need from the PRA to help deliver on the public commitments they have made. We look forward to an update on their £100bn commitment.

Meanwhile, there are two areas where we have been considering this year how we can go further. The first is through our engagement with the National Wealth Fund. The second is our proposed investment accelerator, which aims to shift the dial for expansion into new productive asset classes where speed is an important factor.

Working with the National Wealth Fund

In her Mansion House speech last November, the Chancellor stated that the PRA, HM Treasury (HMT) and the National Wealth Fund (NWF) would work together to ‘crowd in’ investment by insurers into productive assets. A recent investment in social housing is one example. In recent months we have been engaging actively with insurers, the NWF and HMT to help build a collective understanding of the UK productive investment landscape, the role insurers can play in supporting projects in the NWF’s priority sectors, and the investment features insurers are likely to find desirable.

This engagement is helping to generate a common understanding of the investment structures that could allow life insurers to expand further their contribution to productive investments, through projects that complement the long-term nature of their liabilities. We will continue these discussions this year to help unlock new opportunities for productive investment by insurers in the NWF’s target sectors.

MA investment accelerator

During the Solvency UK design phase, firms told us that despite the reforms, there were times when investing in certain assets, including productive asset classes, could still be challenging due to short investment windows.

While our application timelines have already shortened significantly as I have outlined, we wanted to go further to help remove the risk that some productive investment opportunities may still be missed.

So we are consulting on proposals for a so-called ‘investment accelerator’^{footnote [6]}. This will allow firms to self-assess the eligibility of new investments in their MA portfolios, for up to two years. Insurers will be able to claim an MA benefit during this period on assets they judge to be MA-eligible, supporting rapid productive investment.

We think a two-year period strikes the right balance between allowing the benefits of the accelerator to be achieved and allowing firms sufficient time to plan their pipeline of future MA applications, while also ensuring that assets do not remain in the MA portfolio without PRA approval for an overly long period. If assets in the accelerator are later assessed as MA-ineligible, this could cause an overstatement of firms’ capital strength. As well as the two-year period, we have included some simple safeguards to address this risk, so that firms have the necessary contingency plans in place^{footnote [7]}.

The accelerator is an example of where we are seeking to facilitate innovation in pursuit of competitiveness and growth whilst maintaining an appropriate level of policyholder protection. We welcome comments on the consultation, which closes in June.

Maintaining resilience

I’ll turn now to our supervision of the BPA market. Our job is to make sure that insurers taking on these liabilities remain safe and sound, with policyholders protected, and that the sector can continue to fulfil its critical economic functions of providing retirement income to policyholders and long-term investment throughout the cycle. As part of that, it is important that the sector can safely absorb the high projected volumes of new BPA business.

An insurer’s ability to meet the significant, long-term commitments of pension liabilities ultimately depends on the pricing and credit risk decisions they make today – and pension fund trustees, their advisors and transferring scheme members also need ongoing confidence in the financial resilience of UK insurers as BPA counterparties.

The BPA market has continued to be very competitive over the last year. Demand from sponsors has remained high, as schemes’ funding positions have improved on the back of higher interest rates. Tight credit spreads have affected insurers’ asset allocation strategies. We have seen changes in terms and conditions and the introduction of new product features that can pose different risks. Increased demand has stimulated supply through new entrants and additional capital. Insurers’ operational and risk management approaches, and asset origination capabilities, have needed to adapt to these changes.

Against this backdrop, we have been alert to the risk that structures and features emerge that may pose safety and soundness risks if they are not managed effectively. Two examples of our supervisory focus on such issues have been our work on solvency triggered termination rights, and funded reinsurance. And as the broader global risk outlook changes, it will be important for insurers to think about the implications for credit conditions and their investment portfolios.

Solvency triggered termination rights

Solvency triggered termination rights are an increasing feature of the BPA buy-in market. They provide pension schemes with the option to terminate a buy-in arrangement when an insurer’s solvency position has breached a pre-defined threshold such as 100% of its Solvency Capital Requirement (SCR). The terms of these options vary, and we have been considering their implications for insurers.

These rights have the potential to impact the sensitivities of an insurer’s balance sheet under stress. For example, in some cases a pension scheme’s recapture of annuities could improve the insurer’s solvency position if assets backing the SCR are retained.

However, they can also introduce new risk management challenges. For example, if a termination payment could be required from an insurer to the pension scheme at short notice or with constraints on the assets which can be included, this could expose the insurer to liquidity risk. If a termination payment affected a high proportion of an insurer’s underlying annuity asset portfolio, this could also generate asset concentration risk depending on the make-up of its residual portfolio.

To mitigate these potential risks, we expect insurers to consider carefully the potential issues for their portfolios which might arise in risk managing these exposures in a stress situation, and ensure they have mechanisms in place to address them. For example, firms should consider the options available to them such as retaining more contractual discretion over the composition or timing of any termination payments, ensuring liquidity risk appetites and asset concentration limits are calibrated to reflect the impact of these options under stress, and prudent exposure limits on the use of solvency triggered termination rights.

Funded reinsurance

The implications of continued growth of funded reinsurance transactions also remain high on our supervisory and policy agenda^{footnote [8]}. The PRA and Financial Policy Committee (FPC) have previously expressed concerns that sustained growth in funded reinsurance transactions could, if not properly controlled, lead to a rapid build-up of risks at a sector level^{footnote [9]}.

Funded reinsurance transactions are in many ways much closer in economic substance to collateralised loans to a reinsurer, bundled with a degree of longevity reinsurance. Moreover, these transactions often involve counterparties with business models more heavily focused on private asset origination rather than traditional reinsurance, with higher concentrations to illiquid investments which may have more correlated risk of default.

Furthermore, commercial pressures on some insurers – for example to secure BPA contracts or reduce capital strain – may drive higher funded reinsurance volumes or weaken the terms in such transactions. For example, we have seen signs of some insurers lowering their collateral standards, increasing the risk that the collateral supporting these loans might not be adequate to cover long-term liabilities in a reinsurance recapture event^{footnote [10]}.

In July last year, we published policy expectations for those UK insurers active in funded reinsurance, covering risk management, the modelling of the SCR, and how firms should consider the structuring of these arrangements^{footnote [11]}. Since then, our supervisors have been engaging with those individual life insurers who use funded reinsurance. We have sought to understand how effectively they have implemented these expectations and how firms’ appetites have been impacted.

We have seen some positive signs of change including some insurers adopting more robust or formalised collateral policies and recapture plans. These are important controls.

But as we noted in our 2025 Insurance Priorities letter, there are also areas where some firms are falling short^{footnote [12]}. In particular, the limits which insurers have set to manage their funded reinsurance exposures are not always aligned with our expectations.^{footnote [13]} It is also not clear that the frameworks firms have in place for managing their funded reinsurance adequately mitigate the potential for a build-up of systemic risk in aggregate. While our expectations were designed to set important baselines for prudent risk management practices, they have not so far appeared to materially alter the outlook for funded reinsurance volumes, nor do they appear to have prevented a trend towards weaker collateral standards.

This work will remain a supervisory priority for us in 2025 and we will continue to consider whether further action is needed to address the risks in the light of our findings.

We have also continued to engage internationally on the potential risks involved in funded reinsurance, and the growing interconnectedness between the life sector and the private equity and credit markets. The International Association of Insurance Supervisors (IAIS) has considered funded reinsurance growth in its most recent annual Global Insurance Market Report^{footnote [14]}. I also welcome the recent publication of the IAIS’s draft issues paper on structural shifts in the life insurance sector including asset intensive reinsurance^{footnote [15]}. The Bank for International Settlements and the International Monetary Fund have also recognised these emerging risks^{footnote [16]}.

It is important these broader global financial sector perspectives are considered because individual insurer risk management and controls only provide a certain level of protection – these wider vulnerabilities and interlinkages can only be properly assessed and mitigated at a system-wide level.

Credit conditions

Alongside these two areas, we are also focused on the potential implications of the changing global risk outlook, which has become more uncertain in recent weeks. The MA insulates life insurers’ solvency positions in the short-term from movements in credit spreads. But the more important question for life insurers will be how the longer-term credit outlook might eventually impact the level of credit defaults and downgrades they experience.

The FPC noted earlier this month that the global risk environment had deteriorated, and the growth outlook had weakened. Furthermore, it highlighted that heightened global uncertainty and perceived higher economic risk could translate into tightened financing conditions. These developments had the potential to interact with the vulnerabilities it had identified previously in private markets around high leverage, valuations uncertainty, credit market interconnections and the exposure of insurers^{footnote [17]}.

This last point highlights the link with our work on funded reinsurance. Many of the underlying collateral assets backing these transactions originate from the private equity and private credit sectors, with potential for underlying correlated risks which may not be immediately apparent. Credit weaknesses in some of these assets may take some time to show through fully into valuations, defaults or downgrades, particularly where assets are pooled and securitised. But if these assets do deteriorate, the correlated nature of exposures could increase the risk of multiple recapture events across different funded reinsurance transactions, leading to corresponding increases in capital requirements for cedants and the need to take management actions – for example to rebalance portfolios – in stressed market conditions.

Given these developments, life insurers will need to think carefully about this changing backdrop in their risk management and stress testing. Insurers involved in funded reinsurance transactions should also monitor closely their exposure to the underlying assets in these transactions given this outlook.

Improving transparency

As I mentioned in my introductory remarks, Solvency UK included new safeguards to promote good risk management practices. Two of these safeguards have enhanced insurers’ accountability for the level of MA benefit taken. There is now an annual MA attestation process, and a mechanism to allow firms to adjust the level of MA benefit they take if they judge the standard calculation does not reflect the retained risks for their portfolio^{footnote [18]}.

Life Insurance Stress Test (LIST)

The final safeguard is our new approach to stress testing, where for the first time we plan to increase transparency by publishing both sector-wide and firm-specific stress test results for the largest UK life insurers.

The objectives of LIST 2025 are to assess sector-wide and individual firm resilience to severe but plausible events; to strengthen market understanding and discipline through individual firm publication and to improve insights into risk management vulnerabilities. The exercise has three parts: a core financial market stress, and two additional ‘exploratory’ scenarios – an asset concentration stress, and a funded reinsurance recapture scenario^{footnote [19]}.

LIST 2025 will focus on the largest BPA writers as an important part of the life sector. In designing the firm-specific disclosures, we have consulted potential users including analysts, credit rating agencies, pension fund trustees and advisers to understand the information they would find helpful to understand insurer resilience.

I want to emphasise that LIST is not a pass or fail exercise and the results will not be used by the PRA to set regulatory capital. The core financial markets stress represents one severe but plausible scenario. Although not calibrated to a specific historical financial event, the scenario takes into account previous market shocks from the past 20 years, including the worst year of the global financial crisis, and recent annual concurrent stress test scenarios for banks and building societies.

We are also aware that exercises like this inevitably require some simplifications. For example, this first exercise will focus solely on the solvency positions of individual insurance legal entities, so will not cover any wider group factors. To help provide comparability between firms, we have also defined a specific set of management actions that firms can take credit for in the exercise.

Given these simplifications, we recognise the importance of explaining clearly the scope and limitations of the exercise when we publish the results. We also recognise some firms might want to provide additional information alongside our results to provide context beyond the scope of the exercise.

Let me say a bit more about our publication plans.

We intend to publish the LIST 2025 results towards the end of the year. Given the exercise includes both sector-level results and some firm-specific components, we plan to split the publication into two stages.

The first publication will include aggregate results, with sector-level commentary and aggregate disclosures covering all three parts of the exercise. This will also include some information to help explain how the MA works in the core financial market stress scenario.

We then plan to supplement the sector publication a few days later with some firm-specific disclosures, showing the high-level composition of firms’ MA portfolios by asset class, and the impact of the core financial market stress scenario on their solvency positions in each stage of the stress. We will provide some brief narrative alongside these results and firms may publish additional information at that stage if they choose. For LIST 2025 there will be no firm-specific disclosures on the two exploratory scenarios.

We will also take stock next year on the lessons we have learnt from LIST 2025 as we think about future exercises, which we have said we aim to complete every two years. I am grateful to all those who have helped us launch this exercise for the first time this year and look forward to continued engagement with stakeholders as we prepare for publication.

Closing remarks

The BPA sector is competitive and continuing to grow fast. As it does so, the number of policyholders who rely on insurers to provide secure retirement income also increases. Ensuring the life insurance sector has the financial resilience to continue to meet those important long-term commitments to policyholders in good times and bad also becomes more important than ever. And as the sector’s investment capacity increases, it is important that the sector puts this capacity to work to meet these policyholder commitments and to help benefit the UK economy as much as possible.

These points align closely to the objectives Parliament has given the PRA – first, to promote insurers’ safety and soundness and protect policyholders, and to then to facilitate where possible competition, competitiveness and growth in the UK economy.

With Solvency UK, the PRA’s streamlined processes with our dedicated resources, our work with the National Wealth Fund, and the upcoming investment accelerator, I believe insurers have all the tools they need from us to meet their commitments to increase long-term productive investment in the UK.

At the same time, insurers must maintain appropriate risk management discipline through a changing and competitive market, to ensure the sector remains resilient to shocks and able to fulfil its commitments to policyholders even in uncertain times. We will continue to assess how well insurers are doing this through our supervision work, and we will keep under review whether further policy measures are required.

And through our stress testing, we are seeking to improve the information available to allow other stakeholders to understand the resilience of the sector and the major BPA insurers within it.

Supporting investment, maintaining resilience, and improving transparency. Through this work, I hope we can continue to ensure the BPA sector can provide sustained investment in the UK economy, while providing stakeholders with ongoing confidence in the long-term security of the promises being made to policyholders. In short, overseeing BPA growth safely.

Thank you.

I am grateful to Chris Probert, Alan Sheppard and Stefan Claus in preparing these remarks. I am also grateful to Lucy Allen, Mandip Bhogal, Anthony Brown, Casper Davidson, Lisa Leaman and Laurienne Sherriff for their support and comments.