The regulatory arm of the Bank of England has unveiled plans to tighten capital requirements on funded reinsurance deals, where life insurers transfer risk to offshore reinsurers.
Under proposals from the Prudential Regulation Authority, insurers would need to hold around 10% capital against these arrangements — up from the current 2% to 4% — reflecting concerns that existing rules underestimate the risks.
The move comes as funded reinsurance grows rapidly, with UK exposure estimated at around £40bn today and projected to reach £100bn over the next decade. The sector has attracted significant backing from private equity firms such as Apollo Global Management, KKR, CVC Capital Partners and The Carlyle Group.
Major UK insurers affected include Aviva, Legal & General and Standard Life.
The regulator said current rules create an imbalance that favours funded reinsurance over similar risk-transfer structures and could shift investment away from assets that support the UK economy.
Gareth Truran, an executive director at the Bank of England, said the aim is to address risks early before they become more significant across the sector.
The proposals will now go out for consultation, with responses due by July 31. If implemented, the new rules would apply to deals completed from October.
The UK is not alone in examining the trend, with regulators in Europe and the United States also increasing scrutiny of the growing links between private capital and the insurance industry.
Huw Evans, UK head of insurance at KPMG, noted that the PRA’s approach goes further than many global peers, raising questions among insurers about its alignment with broader growth objectives.
