PRA to further monitor GI underwriting and pricing strategies in 2025/26 business plan

By Rebecca Delaney

April 10 - (The Insurer) - The UK's Prudential Regulation Authority will look to "challenge" general insurance firms with a history of overly optimistic underwriting profit forecasts as part of its ongoing monitoring of market cycles, the watchdog said in its new business plan on Thursday.

• PRA to challenge "overly optimistic" underwriting profit forecasts

• Continued focus on cyber underwriting risk amid market growth and evolution

• Further details on stress test for GI firms due in September

The PRA's business plan for 2025/26 sets out the workplan for each of the its strategic priorities to advance its primary and secondary objectives.

The business plan noted that market conditions for UK general insurers may become more challenging for some lines of business in 2025/26 owing to varying points in the underwriting cycle.

"The PRA will monitor how GI firms use underwriting strategies and pricing actions to navigate the cycle, and will work with the Society of Lloyd’s to coordinate its oversight of Lloyd’s managing agents," said the business plan.

"The PRA will also challenge firms that have a history of projecting overly optimistic underwriting profits in their business plans and internal models."

The watchdog added that it will continue its focus on cyber underwriting risk as both the level of risk and size of the market grow and evolve.

As previously reported, the PRA is planning an analysis of new cyber underwriting risk reporting data later in the year. This includes ensuring that GI firms are able to identify, quantify, manage and monitor sources of this risk across GI portfolios, with scenario-testing in the context of emerging risk drivers such as AI.

The PRA added that it intends to review the existing supervisory expectations for cyber underwriting risk to consider whether further work is required, in order to reflect market developments.

In January the PRA also launched a stress testing exercise to gain insights into the financial resilience of the largest UK life insurers. For the first time, the PRA plans to publish individual firm results, as well as aggregate results, which is expected in Q4 2025.

"For general insurers, the next stress test will be a dynamic stress, designed to play out over the course of three weeks. The exercise is expected to commence in May 2026," the PRA confirmed.

"Given (its) novel nature and to support firms in preparing for this exercise the PRA intends to provide further details on the logistics and to engage with industry from September 2025 onwards."

Lastly, following a consultation into the UK insurance special purpose vehicle (ISPV) regime, the PRA said it intends to finalise changes to the framework later in the year.

The changes are designed to streamline and speed up the application and approval processes, as well as to clarify the PRA’s expectations of UK insurers who cede risks to ISPVs.

"These changes aim to contribute to the UK’s international competitiveness and growth by making it more desirable to establish UK ISPVs, supporting UK market innovation and providing more diversification opportunities for investors and additional sources of capital and reinsurance capacity," the business plan said.