PRA Strengthens Oversight of UK Bulk Annuity Market Amid Growth and Innovation

The bulk annuity market is experiencing growth in both insurer participation and product innovation, prompting a heightened focus from the Prudential Regulation Authority (PRA) to maintain policyholder protection while fostering a competitive environment. With the post-Brexit implementation of the Solvency UK regulatory regime concluding in 2024, the PRA entered 2025 with updated guidelines and conducted its latest Life Insurance Stress Test (LIST) targeting the bulk annuity sector. The results indicated that all insurers remained well capitalized and robust against a severe financial market shock, demonstrating sector resilience despite variability among individual insurers. A key area of regulatory scrutiny is the use of funded reinsurance, where insurers transfer some asset risk associated with annuity liabilities to reinsurers, often overseas. New regulations in 2024 increased risk management requirements for funded reinsurance, and the 2025 LIST included stress scenarios assessing failure risk of reinsurance counterparties. While the PRA has so far withheld individual insurer data on funded reinsurance risks, market participants emphasize the importance of transparency in this area for informed due diligence. Additionally, the PRA is examining solvency-triggered termination rights (STTRs) embedded in some bulk annuity contracts, which allow pension schemes to terminate agreements if an insurer’s solvency falls below agreed thresholds. Although providing enhanced scheme security, these rights pose potential liquidity and operational risks to insurers if triggered simultaneously across multiple schemes. As of late 2024, STTRs cover approximately £50 billion in bulk annuities, with regulatory intervention possible should risk management be deemed inadequate. The PRA also implemented the Matching Adjustment Investment Accelerator in October 2025, enabling insurers to more swiftly invest in qualifying assets without lengthy approvals. This measure supports efficient asset allocation aligned with regulatory criteria essential for competitive annuity pricing and promotes investment in UK-based productive assets. Looking ahead, the PRA's dual mandate of policyholder protection and supporting market growth will continue shaping supervisory activities, especially as significant ownership changes unfold within the insurer landscape. Trustee and pension scheme sponsor engagement with evolving regulatory frameworks and market developments remains critical for effective risk management and safeguarding policyholder interests in bulk annuity transactions.