The Prudential Regulation Authority (PRA) has published its 2026 insurance supervision priorities in its latest ‘Dear CEO’ letter, setting out its expectations for both life and general insurers for the year ahead. While many themes continue from 2025, the PRA adds important new focus areas – most notably delegated underwriting, AI governance, and reinforced expectations around operational resilience. The supervisory stance also reflects the PRA’s enduring objective: ensuring the insurance sector provides financial protection and security “in good times and bad,” even against a challenging macroeconomic backdrop.
We summarise the key themes from the letter, and highlight what insurers should focus on in light of them.
General insurance sector priorities
a. Soft market conditions: Pricing and reserving adequacy
The PRA observes continued softening of underwriting cycles across general insurance markets, especially in the London Market. This increases the risk that firms may be relying on overly optimistic underwriting assumptions and understating Solvency Capital Requirements.
The PRA is clear: firms must provide robust justification for pricing and reserving assumptions, and it will take assertive action where models cannot be defended.
Firms should expect heightened scrutiny of year‑end reserves from auditors and other assurance functions. There will likely be increased challenge around internal model assumptions and more Boards seeking assurance on pricing and reserving adequacy.
b. Delegated underwriting: Strategy, oversight and exit planning
The PRA highlights the expansion of delegated underwriting as a 2026 focus. It expects firms to maintain clear strategies, ensure pricing and reserving adequacy, and have strong oversight of delegated arrangements.
As well as impacting insurers, MGAs and coverholders are likely to face greater scrutiny over underwriting strategy, adequacy and performance.
More transparent and frequent performance MI will likely be required and insurers will need clear exit strategies for underperforming schemes.
c. Exposure management and data quality
Despite significant investment in data frameworks, the PRA concludes that more progress is needed on data quality, systems, and models supporting exposure management.
Data governance remains a multi‑year journey and many firms may benefit from fresh assurance over data lineage, standards and controls.
d. DyGIST 2026: A semi‑live stress test
The Dynamic General Insurance Stress Test will take place in May 2026, involving firms representing more than 80% of UK market GWP. Results are expected to be published in Q4 2026, offering a detailed view of GI sector resilience.
Firms should closely monitor the outcomes and lessons learned from this exercise and consider the impact on their own resilience arrangements.
Life insurance sector priorities
a. BPA market: Competition, pricing discipline and risk standards
The bulk purchase annuity (BPA) market continues its rapid expansion, but the PRA reiterates concerns that competitive pressures could erode pricing discipline and risk standards. This will require close Board attention, particularly around:
- The robustness of pricing processes
- Risk management frameworks
- The adequacy and independence of internal challenge.
Boards may need additional assurance, whether through internal audit or external review, to demonstrate ongoing reserving strength as pricing margins tighten.
b. Funded reinsurance: Material risks under scrutiny
The increasing use of funded reinsurance (FundedRe) presents the PRA with significant concerns around counterparty exposure, concentration risk and complexity. The regulator will continue engaging with insurers and plans updates later in Q2 2026.
Firms using Funded Re should ensure transparency, strong counterparty governance, and board‑level visibility of associated risks. The PRA has noted it is considering placing restrictions on the amount and structure of FundedRe, which firms may wish to consider in their scenario modelling.
c. Evolving investment strategies and liquidity risks
Life insurers’ portfolios are evolving, supported by the Matching Adjustment Investment Accelerator and greater use of structured and synthetic assets. The PRA stresses that credit, liquidity and reinvestment risks must be well understood and effectively controlled.
Firms will need to consider whether their monitoring of liquidity under stressed conditions is appropriate and have clear documentation of investment strategy risks. Additional complexities in regulatory and statutory reporting from more complex asset classes should also not be overlooked.
d. Governance and group structures
With new capital and ownership structures becoming more common, the PRA reiterates that insurers must maintain independent legal entity governance and robust management of conflicts of interest.
Many groups may now need to re‑examine decision‑making frameworks, ensuring approvals, oversight, and escalation pathways remain proportionate and independent in accordance with PRA principles.
Cross‑sector priorities
a. Operational resilience: Embedding, testing and third‑party management
Operational resilience must now be fully embedded within insurers’ cultures and strategic decision‑making. The PRA expects firms to improve resilience testing and deepen oversight of critical third parties – particularly in the context of major transformation or cloud adoption.
Operational resilience is far from finished business: firms must maintain momentum, regularly reassess resilience post‑change, and evolve testing methodologies.
b. Cyber resilience
Cyber risk remains elevated, and firms are expected to demonstrate robust capabilities to prevent, detect, respond and recover.
Recent high‑profile incidents across sectors serve to only increase the Board‑level focus on cyber readiness – a key area of work for internal audit functions. The PRA will continue to engage with firms using various methods, working alongside the FCA.
c. Solvent exit planning
The PRA reminds insurers of the 30 June 2026 deadline for completing their Solvent Exit Analysis (SEA). SEA must be proportionate and must address practical barriers to exit.
Many firms have begun this work but may underestimate the assurance requirements. PKF have supported numerous FCA regulated businesses with their wind‑down planning and lessons learned from these exercises show that the level of work should not be underestimated.
d. Artificial Intelligence: A new explicit priority
For the first time, AI is clearly identified as a new supervisory priority. The PRA acknowledges both the opportunities and the novel risks, including data quality issues, third‑party dependencies and heightened cyber vulnerabilities.
AI is a regular discussion point with our clients, and many insurers are accelerating adoption across both back-office and customer facing domains. Governance, transparency and board visibility over AI use will be critical.
What Boards, senior management, CROs and Internal Audit functions should do next
Boards should formally consider the PRA letter and assess what additional focus is required in 2026. Practical steps include:
- Enhancing board scrutiny across pricing, reserving, investment strategy, liquidity and stress testing
- Ensuring better MI, especially on delegated underwriting, operational resilience, pricing adequacy, investment performance and cyber incidents
- Strengthening internal model validation, assumption challenge and documentation
- Preparing for Solvent Exit Analysis, including embedded assurance before submission
- Mapping all uses of AI, ensuring risks are understood and governance frameworks are robust
- Reviewing group governance structures, ensuring independence and conflict management remain strong.
Whilst the regulator highlights progress in reduced supervisory intensity and continued attempts to modernise and streamline reporting, increased scrutiny will continue to be felt by insurers in the PRA’s priority areas.
For CROs and Heads of Internal Audit, the PRA letter should prompt a review of both risk and audit plans to identify where targeted, thematic or deep‑dive assurance is needed.
How PKF can help
PKF has an experienced team of insurance carrier experts who understand the sector and regulatory priorities. Our expertise spans across audit, actuarial, governance/risk, internal audit and financial accounting advisory.
If you require advice, assurance or other support on any of the PRA supervisory priorities, please speak to us.
