We provide guidance on what preparers of financial reporting need to consider at a time of considerable global and domestic change.
The UK insurance industry enters the final quarter of 2025 with cautious optimism. Despite global economic volatility and political transformation, many leading insurers including Aviva, Legal & General, Prudential and Intact (formerly RSA) Insurance, have reported solid interim results.
But beneath this resilience lies a complex blend of inflationary pressures, regulatory shifts, and emerging political risks that is shaping year-end financial reporting and strategic planning. These macroeconomic pressures are reflected in how insurers are pricing and structuring cover across key lines of business.
So how are things changing?
- A soft market is leading to premium reductions in most lines. This benefits buyers but puts pressure on margins. But some lines, such as cyber risk, are holding up through sustained demand and evolving threats.
- Macroeconomic factors – sluggish growth, rising unemployment and fiscal tightening – are influencing underwriting and investment strategies.
- Specific sector trends show softening in construction and professional indemnity, inflation-driven pressures in motor, and stability in liability and property.
- Political shifts, including Reform UK’s rise, could reshape healthcare funding, regulation and tax policy.
- Regulatory changes (Solvency UK, IFRS 17) and developing risks (climate, cyber, AI) demand stronger operational resilience and clearer financial reporting.
This all means that insurers must focus on reserve adequacy, investment strategy and compliance. Transparent narrative reporting becomes all the more important to address year-end complexity and, crucially, to maintain stakeholder confidence.
Market conditions and competitive dynamics
The UK insurance market remains soft, with premium reductions of 11–20% across most lines. Increased underwriting flexibility benefits policyholders. On the other hand, it adds pressure on insurers’ profitability and raises concerns about under-pricing and future claims volatility.
In this environment, financial reporting requires closer scrutiny of insurance liability adequacy, because reduced premiums may not fully cover future liabilities.
Insurers should clearly disclose key assumptions and risk exposures to support earnings quality and capital strength. Margin compression also affects underwriting profitability, so transparent narrative reporting is essential to put performance into context.
Economic threats to demand and premium growth
The UK’s long-term economic outlook remains subdued, with sluggish productivity and weak business investment continuing to weigh on growth potential. Although the IMF has revised GDP growth slightly upward to 1.3% for 2025, forecasts for 2026 and beyond remain muted.
For insurers, slower economic expansion can dampen demand for commercial lines such as business interruption and property insurance. It also limits overall premium growth across the sector.
Looking at financial reporting, subdued economic conditions may reduce earned premiums and heighten uncertainty in revenue forecasts. This means insurers should support forward-looking disclosures with clearly justified and documented assumptions. It will also be wise to use scenario analysis to assess the impact on solvency, profitability and capital adequacy.
The effects of growing unemployment
The UK unemployment rate has risen to 4.7%, which signals emerging slack in the labour market. This trend may lead to more claims under income protection and unemployment-related insurance products. Employers facing cost pressures may reduce or restructure group insurance schemes. Lower consumer spending could suppress demand for discretionary insurance offerings such as travel, gadget and lifestyle cover.
So insurers should reassess provision for claims and policyholder behaviour assumptions, particularly in income protection lines. Reduced uptake of group schemes and discretionary cover may lower premium income, requiring clear disclosure of revenue impacts and changes in product mix. Year-end financial statements should transparently reflect material adjustments to actuarial models and key assumptions, including loss ratios.
Fiscal policy and public debt
The UK is grappling with a record-high tax burden and rising debt servicing costs. This means fiscal tightening is expected in the Autumn Budget. Potential spending cuts or tax increases could further reduce public investment in infrastructure. This, in turn, would affect demand for construction-related insurance.
At the same time, scaled-back public services may drive greater interest in private health and pension products. Overall, fiscal policy uncertainty could influence consumer sentiment and business confidence, indirectly impacting insurance uptake.
From a financial reporting perspective, insurers should revisit demand forecasts for infrastructure and public sector-linked products. Changes in consumer behaviour and product mix may impact revenue recognition and segment disclosures. Fiscal tightening could also affect investment performance, requiring clearer asset valuation and risk reporting.
The risks of currency volatility
Sterling has experienced notable fluctuations throughout 2025, driven by political instability and broader macroeconomic uncertainty. Currency volatility poses several risks to insurers. These include increased reinsurance costs for firms with international exposure, reduced profitability for those with non-GBP liabilities or revenues, and valuation challenges for investment portfolios holding foreign assets.
Insurers must address the impact of currency movements on asset valuations, foreign exchange gains and losses, and reinsurance expense disclosures. They could consider economic hedging strategies and hedge accounting solutions to help mitigate the effect of changes in foreign exchange rates on the financial statements. Enhanced sensitivity analysis and clear narrative reporting are essential to explain volatility effects on financial performance.
Brexit legacy still a factor
The post-Brexit regulatory landscape continues to evolve, with the UK actively reforming Solvency II and revoking legacy EU insurance directives. Trade friction and limited access to EU markets have increased operational costs for insurers with cross-border operations. These trends have also heightened demand for political risk and trade credit insurance.
Uncertainty on passporting rights and equivalence arrangements continues to affect international business models and strategic planning. Financial reporting must reflect changes in regulatory capital requirements, cross-border revenue segmentation and cost structures. Disclosures should address persisting Brexit-related risks and their implications for solvency, liquidity and strategic outlook.
Geopolitical tensions and political risk
Global geopolitical tensions, including US-China trade disputes and instability in the Middle East, are bringing more demand for political violence and cyber risk cover.
The rise of Reform UK introduces new political risk, with proposed policies that could reshape the insurance landscape. These include deregulation of financial services, tax incentives for private healthcare, and a shift toward insurance-based healthcare models. Such changes could create opportunities for growth, but they also introduce implementation uncertainty and potential volatility in investor sentiment.
This means financial reporting should include scenario planning and stress testing to assess exposure to political risk. Insurers must show transparency in the assumptions they use for forecasting and valuation, and provide commentary on regulatory and policy developments.
The effects of environmental factors
The transition to net zero and the evolution of ESG frameworks are reshaping both investment strategies and underwriting practices across the insurance sector. Insurers are reassessing exposure to carbon-intensive (‘brown’) assets and increasing allocations to green infrastructure.
Regulatory pressure is mounting for transparent climate risk disclosures and alignment of portfolios with sustainability goals. All this makes ESG integration a strategic imperative for insurers heading into 2026.
Financial reporting must, as relevant, include climate-related financial disclosures (TCFD-aligned), ESG metrics, and portfolio alignment statements. Insurers should also evaluate the impact of climate risks on asset impairment, underwriting profitability and long-term solvency projections.
What are the priorities for year-end reporting?
- Reserve adequacy. Insurers must rigorously test inflation-adjusted assumptions to ensure reserves are sufficient to cover future liabilities. This applies especially in a soft market environment. Clear disclosures on reserving methodologies are essential for stakeholder confidence.
- Investment valuation. Firms must closely monitor asset volatility, and disclose valuation techniques transparently. This is particularly important given currency fluctuations and fiscal uncertainty.
- Regulatory compliance. Robust disclosures under Solvency UK and IFRS 17 remain essential, particularly in light of Brexit-related reforms. While Solvency UK reporting is largely standardised, insurers should make clear any changes in capital requirements, internal model adjustments and the impact of cross-border restructuring. IFRS 17 offers more flexibility in insurance risk disclosures, allowing insurers to explain how these regulatory shifts affect financial performance and risk exposure.
- Operational resilience. Firms must assess their ability to withstand cyber threats, climate events and geopolitical disruptions. Financial reporting should reflect stress testing outcomes and risk mitigation strategies.
- Narrative reporting. Insurers should clearly articulate how macroeconomic trends, political developments, and ESG factors influence strategic decisions, underwriting performance and financial results.
Dealing with uncertainty
Market conditions in the final quarter of 2025 remain largely favourable for the insurance industry by historical standards. But macroeconomic and political complexities demand strategic clarity and robust financial reporting.
Clear disclosures, robust reserve and valuation methodologies, and transparent narrative reporting will be critical to maintaining stakeholder confidence. As insurers prepare for year-end, their ability to translate uncertainty into resilient financial strategies will define their credibility and competitiveness heading into 2026.
If you would like to further guidance on any issues raised in this article, please contact Simoné Bester.
