Dear CEO PRA priorities contains number of points relevant for DB schemes considering buy-ins and buy-outs

Yesterday, 15 January 2026, the Prudential Regulation Authority (the PRA) issued its annual letter to insurer CEOs setting out its priorities for supervising UK insurers in 2026.

Life insurers writing bulk purchase annuities continue to be a key area of focus for the PRA reflecting the long-term nature of the risks they take on. The PRA’s priorities build on both new and existing themes with a number of points that are relevant for defined benefit pension schemes considering buy-ins and buy-outs.

In particular the PRA letter confirms:

• Competitive pressures. The PRA prominently highlights the “very competitive” buy-in market and how the PRA “remain[s] concerned that competitive pressures create incentives for firms to weaken pricing discipline or their risk management standards.”
• Policy action will follow for insurers using Funded Reinsurance. This was strongly hinted at by the PRA’s speech in September 2025, and the PRA has confirmed the need for policy action following discussions held with insurers over the autumn. Further details are expected to follow in Q2 2026.
• Termination rights continue to be a focus. Solvency-based termination rights were a key focus for the PRA last year and they plan to revisit them this year to ensure the risks are “recognised and managed appropriately”.
• Insurers that use structured and synthetic investments should ensure appropriate appetite and limit frameworks are in place. The PRA highlights the insurers use of “strategic structured and synthetic investments” which presumably refers to insurers’ increased use of leveraged gilts trades. LCP’s 2025 PRT report discussed how insurers use such investments to drive competitive pricing as the additional return available from corporate bonds remains narrow. The PRA stresses the importance of insurers managing the liquidity risks associated with such leveraged structures and how this will be supported by the increased liquidity reporting to the PRA that is due to apply from September 2026.
• Managing credit risk, particularly in relation to private credit, remains a key priority. As highlighted in LCP’s report, insurers are seeking to invest in a wider range of asset classes and geographies. The PRA highlights the need to pay particular attention to the potential for vulnerabilities from exposures to private markets in stressed conditions. The Bank of England will explore the extent of potential systemic risks arising from private capital flows across financial markets, including insurers, later in 2026.
• New capital and ownership structures. The PRA continues to observe “additional capital and new investors seeking to enter the BPA market”. The PRA states that it is “open to a diverse range of business models and ownership structures” but emphasises that it expects management “to run their business prudently in a way which supports their long-term safety and soundness” highlighting “robust independent legal entity governance” and “conflicts of interest” as being of particular importance.
• Artificial Intelligence. The PRA highlights the opportunities of AI describing it as “key to a flourishing financial services industry” but flags the “novel risks” it introduces which “amplify existing issues”.

The PRA also highlights the need for insurers to continue to improve their operational resilience testing, including deeper engagement with third party providers.

Commenting on the letter, Gavin Smith, Principal at LCP, said:

“The PRA sets a high bar for the standards that it expects insurers to follow, and rightly so. We welcome their continued focus on ensuring that insurers proactively manage their risks and react to a competitive market environment in a way the that supports life insurer’s long-term safety and soundness. For pension schemes who have previously benefited from the attractive pricing we have seen in the market, or that are contemplating doing so, the presence of a strongly regulated market is of considerable value. We encourage trustees and scheme sponsors to take note of what the PRA considers priority areas.”