UK Law and Practice Contributed by: Clare Swirski, E. Drew Dutton, Hugo Laing and Rosamund Wood, Debevoise & Plimpton LLP
calculation, including by replacing the 6% cost of capital rate with a 4% rate; • maintaining the existing methodology and calibra- tion of the fundamental spread, whilst increasing the risk sensitivity (the Conservative government at the time indicated this would be reviewed again in five years’ time); • broadening the application of the MA and its investment flexibility; and • removing branch capital requirements for foreign firms with “appropriately capitalised” parent com- panies. Many of the reforms, including in relation to the risk margin, were adopted and effective prior to 2024. The reforms of the MA have been in force since June 2024, and the remainder of the Solvency UK regime (imple- mented via the PRA Rulebook) came into force on 1 January 2025. Further reforms of the MA came into force in 27 October 2025 under a policy statement (PS 17/25) published by the PRA, which finalised the Matching Adjustment Investment Accelerator (MAIA) frame- work. The framework introduced a new permission allowing insurers to self-assess the eligibility of MA assets with new features and to apply the MA capi- tal benefit immediately by including them in their MA portfolios, without prior PRA approval. Firms now have 24 months to submit a formal MA application to regularise these assets, during which time they would continue to benefit from the MA capital treatment. Funded Reinsurance In 2025, the PRA continued its trend of focusing on reinsurance arrangements, particularly in the life sec- tor. In September 2025, the PRA delivered a speech on the evolving role of the UK life insurance sector and supporting investment in the wider economy, with a focus on the growing use of FundedRe. In particular, the PRA expressed its concern about the potential for such FundedRe arrangements to increase the fragility of parts of the global insurance sector and concerns that FundedRe structures would distort investment incentives and shift investment away from UK pro- ductive assets towards overseas collateral pools. Fol- lowing this, the PRA hosted two roundtables, which brought together industry stakeholders to explore the
PRA’s potential options. The first roundtable was held in September 2025 and the second in October 2025. The PRA had already raised concerns in 2024 regard- ing FundedRe in a policy statement published in July 2024, which introduced a range of obligations for firms, including requiring clear collateral policies, internally approved guidelines on contractual features of funded reinsurance transactions and a quantitative risk assessment process for their FundedRe arrange- ments. Firms have since been required to assume recaptured assets are non-compliant with their match- ing adjustment permissions, unless they can demon- strate otherwise. Artificial Intelligence Unlike the EU, the UK has not yet implemented AI- specific laws or regulations. Nonetheless, the govern- ment and regulators alike have embarked on several initiatives designed to review AI in financial services, including the insurance market. The FCA’s and PRA’s regulatory approach remains principles-based, and though neither regulator has published any comprehensive AI guidance to date, both continued to engage with stakeholders to pro- mote innovations and tackle risks of AI use in firms throughout 2025. In January 2025, the FCA hosted AI Sprint, which involved participants from across the industry discussing the opportunities and challenges of AI in financial services. The key takeaways were a need for regulatory clarity, safe innovation through sandboxing and collaboration between regulators and other parties such as model developers and the government. In March 2025, the FCA published its five-year strategy, which reaffirmed its “increas- ingly tech-positive approach” and priority to support growth, including by enabling investment in innova- tion. In April 2025, the FCA proposed “AI Live Testing” under its AI Lab - an initiative to work with firms on pre-deployment testing of advanced AI models in live environments, with the aim of evidencing outcomes and building shared evaluation methods. The FCA has since published initial feedback indicating broad industry support. It remains to be seen if specific AI regulatory laws will come into force in the future.
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