The Prudential Regulation Authority published sector-level results from the 2025 Life Insurance Stress Test, concluding that major UK life insurers active in the bulk purchase annuity market would remain above regulatory capital requirements under a severe but plausible financial market shock. The exercise is the first conducted under the Solvency UK regime and is not a pass-fail test or a basis for setting capital requirements or buffers; individual firm results for the core scenario are scheduled for publication on 24 November 2025. LIST 2025 covered 11 large UK life insurers (accounting for more than 90% of annuity liabilities) and assessed the solvency positions of UK legal entities as at 31 December 2024, without allowing for group-level effects or parental support. Under the core scenario, aggregate capital surplus above regulatory requirements fell by GBP 8.6 billion, from GBP 30.5 billion to GBP 21.9 billion, with GBP 12.9 billion of assets downgraded to below sub-investment grade; the sector’s aggregate solvency capital requirement (SCR) coverage ratio declined from 185% to 154%. Key drivers of the deterioration included credit downgrades and defaults, a fall in risk-free rates, and residential property falls affecting equity release mortgage exposures; prescribed rebalancing of 25% of downgraded matching adjustment assets reduced eligible own funds by GBP 0.8 billion after tax, while permitted management actions improved aggregate SCR coverage by 5 percentage points. Two exploratory scenarios tested evolving risks in the bulk purchase annuity market: an asset concentration scenario (an additional 20% downgrade shock to each firm’s most material matching adjustment asset class outside corporate and sovereign credit) reduced aggregate SCR coverage from 154% to 153%, while a funded reinsurance (FundedRe) recapture scenario saw participating firms recapture GBP 12.3 billion of liabilities (around 50% of their aggregate FundedRe exposure) and their aggregate SCR coverage fall from 154% to 144%. The PRA indicated it will consider how to build on the exploratory scenarios in future exercises and is considering whether further action is needed to ensure the regulatory capital treatment of FundedRe transactions is appropriate.
Prudential Regulation Authority 2025-11-17
Prudential Regulation Authority publishes 2025 Life Insurance Stress Test results showing solvency capital requirement coverage ratio falls to 154% under the core scenario
The Prudential Regulation Authority's 2025 Life Insurance Stress Test showed major UK life insurers in the bulk purchase annuity market would remain above regulatory capital requirements under severe financial shocks. Conducted under the Solvency UK regime, the test revealed a GBP 8.6 billion drop in aggregate capital surplus and a decline in the solvency capital requirement coverage ratio from 185% to 154%. Exploratory scenarios indicated further potential risks, with the PRA considering future actions to address regulatory capital treatment of Funded Reinsurance transactions.