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The Bank of England has clamped down on the use of complex offshore financing by UK life insurers, raising capital requirements on the pension portfolios that the sector takes on from companies and then transfers to foreign reinsurers.
The BoE’s Prudential Regulation Authority said on Wednesday it would change the treatment of “funded reinsurance” — in which insurers transfer the risk of pension schemes — by raising the capital needed for such deals and “ending a regulatory inconsistency”.
The action reflects growing concern at the UK central bank over what it sees as a “regulatory arbitrage” that allows insurers to cut the capital they need for pensions despite funded reinsurance transactions often exposing savers to higher risks in private credit.
“Funded reinsurance is growing rapidly and has the potential to undermine the resilience of insurers if not managed properly,” said Sam Woods, head of the PRA. “Today’s proposals aim to iron out the discrepancy in the regulatory treatment for these deals, to protect pensioners and improve insurers’ incentives to invest directly in the UK economy.”
In funded reinsurance deals, both insurance liabilities and the assets backing them are ceded to a reinsurer, often in a foreign jurisdiction such as Bermuda. Many such reinsurers are linked to North American private capital groups that invest UK pension assets in their own funds.
Apollo, Brookfield and Blackstone, which have a large presence in the Bermuda insurance market, have all expanded into the UK “bulk annuities” business, where companies offload their pension liabilities and the assets backing them to insurers.
UK life insurers have agreed more than £40bn of funded reinsurance deals, the PRA said, estimating this was growing fast and likely to reach £110bn in the next decade. Its proposals are designed to avoid such growth.
The central bank said its planned changes would lead to an increase in the capital requirements for insurers using funded reinsurance from 2 to 4 per cent of annuity liabilities to about 10 per cent.
That would make use of funded reinsurance far less attractive for UK insurers. But the PRA said it would still be slightly more advantageous than the capital requirement of 11 to 15 per cent for equivalent assets if they were held by an insurer.
“The PRA has gone further than its global peers in regulating funded reinsurance,” said Huw Evans, UK head of insurance at KPMG, adding that insurers “may question this departure from the principles-based framework and the wider growth agenda”.
The PRA said its proposals would not apply retrospectively to existing funded reinsurance deals but would for those done from October 1.
It said that “many funded reinsurance counterparties have similar credit focused business models, which might be correlated to each other and to broader credit conditions”. It added that “higher proportions of illiquid and private credit-related assets” were being accepted by UK insurers as collateral for funded reinsurance deals.
There has been a flurry of dealmaking by North American private capital groups in the UK life insurance sector in recent months. Last year, Apollo-backed insurer Athora announced a £5.7bn takeover of Pension Insurance Corporation and Brookfield struck a £2.4bn deal for Just Group.
In 2025, the PRA carried out its first-ever test of whether UK life insurers could cope if offshore reinsurers were to fail. The regulator found that UK insurers’ capital levels would remain resilient even if they had to “recapture” £12.3bn of pension assets — about half of the amount they had transferred to offshore reinsurers.
But it was concerned that this exposure could be bigger in a financial crisis especially if the use of funded reinsurance grew as expected.
The FT has previously reported that some of the largest UK insurers had conducted billions of pounds worth of these deals. In 2023, FTSE 100 insurer Legal & General completed £3.2bn of funded reinsurance, while Phoenix Group — now Standard Life — did £1.2bn, and Pension Insurance Corporation undertook £1.3bn.
