The Prudential Regulation Authority’s consultation paper CP8/26, published on 29 April 2026, proposes to raise the capital UK life insurers hold against funded reinsurance transactions from an estimated 2–4% of the underlying annuity liabilities to around 10%. That is roughly a fivefold increase for the legacy structure and, on the PRA’s own framing, the supervisor’s response to a channel that has become large enough to warrant a private-credit-style capital charge rather than a bilateral reinsurance one.
The mechanism is narrower than the headline. The PRA is not setting a flat new multiplier. It proposes to amend the counterparty default adjustment — the deduction insurers take from the matching adjustment benefit to reflect reinsurer default risk — by setting it equal to the fundamental spread for financial corporate bonds. That spread is calibrated to the credit quality step and the maturity of each funded reinsurance cashflow, with the credit quality step itself anchored on the reinsurer’s insurance financial strength rating, adjustable by up to three notches where collateral meets Solvency II criteria. The 2–4% to 10% range is the PRA’s expected average outcome of running that recalibration across the market, not a uniform charge.
That distinction matters because it tells UK readers what the PRA actually thinks the risk is. The supervisor is saying that the existing counterparty default adjustment understates how a funded reinsurance exposure would behave in stress, and that the right reference point is the spread the market demands on a financial corporate bond of equivalent credit quality and tenor. Funded reinsurance, in other words, is being treated as a credit exposure to a financial counterparty, not as a conventional reinsurance recoverable.
The channel CP8/26 is regulating
To see why the PRA is pulling this lever, the chain has to be laid out mechanically. A UK defined benefit pension scheme that wants to remove longevity and investment risk from its balance sheet writes a bulk annuity transaction with a regulated UK life insurer — Legal & General, Aviva, Phoenix, M&G, Rothesay or Pension Insurance Corporation are the active names in the bulk purchase annuity market. The insurer takes on the obligation to pay scheme members and the assets that back it. The insurer then, in many cases, cedes a slice of that obligation under a funded reinsurance treaty to an offshore reinsurance counterparty — most often domiciled in Bermuda — which posts collateral against the ceded liabilities and assumes the asset-side investment performance.
Each step transfers risk. The bulk annuity step moves longevity and investment risk from the trustees to a PRA-supervised insurer. The funded reinsurance step moves a portion of that risk from a PRA-supervised insurer to a counterparty outside the PRA’s direct perimeter. The PRA estimates that roughly 15% of new bulk purchase annuity business has recently been supported by funded reinsurance structures. CP8/26 is the PRA pulling the capital lever on the only step of that chain still inside its jurisdiction.
Who is exposed, and who is not
Sell-side coverage of the consultation has been quick to point out that exposure is uneven. Legal & General and Phoenix carry the largest funded reinsurance balances among UK writers, on industry estimates. Aviva’s exposure is limited. M&G, which re-entered the bulk annuity market in 2026 and has written around £300m of new business so far this year, currently holds no funded reinsurance exposure on the new book. Rothesay and Pension Insurance Corporation, as specialist annuity writers, are also material users of the structure.
The PRA’s text does not name firms; the apportionment above is drawn from broker and industry commentary published after the consultation. Readers should treat firm-level exposure figures as indicative rather than supervisory, and watch the formal responses to CP8/26 — due by 31 July 2026 — for the first authoritative public account of how each writer expects the recalibration to land on its solvency capital requirement.
The other firm-level detail worth flagging is grandfathering. The proposed rules would apply only to funded reinsurance entered into on or after 1 October 2026, with formal implementation on 1 July 2027. Transactions already on the books before that date sit outside the new capital treatment. That softens the near-term hit, but it also creates a clear incentive to close legacy structures before the October cut-off — something the PRA will be watching for in volume data through the summer.
The supervisory signal
The most significant editorial point sits one level above the numbers. CP8/26 belongs to the same supervisory category as BaFin’s special inspections on bank private credit exposures in Germany: different supervisor, different instrument, different balance sheet, but the same direction of travel. European prudential regulators are moving to treat balance-sheet routes into private credit — whether through bank fund finance lines or insurer funded reinsurance treaties — as their own supervisory category, with capital and disclosure consequences calibrated to the credit risk of the channel rather than the form of the contract.
Gareth Truran, the PRA’s Executive Director for Insurance Supervision, delivered the accompanying speech at the 23rd Conference on Bulk Annuities on the same day CP8/26 was published, framing the proposals as part of a broader exercise in maintaining resilience as the bulk purchase annuity market grows. The speech is the place to read the PRA’s policy intent in plain language; CP8/26 is the place to read the calibration.
Where this sits in the UK regulatory map
CP8/26 is a prudential consultation, not a conduct one. It is distinct from the Financial Conduct Authority’s current workstreams on motor finance redress and consumer credit, from the FCA’s Targeted Support proposals on retail advice, and from the Leeds Reforms package on primary legislation. Each of those is FCA- or HM Treasury-led and conduct- or structure-focused. CP8/26 is the PRA setting capital requirements on a wholesale insurance balance-sheet transaction.
For UK pension trustees still working through bulk annuity processes, the practical read-through is that pricing on new transactions after 1 October 2026 is likely to reflect insurers’ increased capital cost on any portion of the deal expected to be ceded under funded reinsurance. For the offshore reinsurance counterparties on the other side of those treaties, CP8/26 is the first formal indication that the PRA intends to price its perimeter problem rather than ignore it. The consultation window closes on 31 July 2026.
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