Last week, the PRA published their annual Business Plan and proposals for the regulated fees and levies. It is a year that will likely see some significant challenges for the regulator and regulated firms with the Future Regulatory Framework proposals currently being scrutinised by Parliament at the forefront of those. It was one of 3 issues highlighted by Chief Executive Sam Woods that will affect insurers, alongside Solvency II and the way the PRA keeps pace with innovation and emerging risks, including specifically climate change risks.

Indeed, Woods sees the PRA as having “an expanded role as a rule-maker and an increased focus on operational resilience.” Firms should pay close attention to how the PRA is evolving.

What the PRA are promising regulated firms is a “more British style of rule making”, one that provides “less fine detail in legislation and more ability for us to maintain and develop a coherent and dynamic rulebook”.

It’s no surprise then that the PRA is expecting to see significant increases in its head count over 2022 and 2023 and this is one of the key factors it cites with an increase of 8% in its proposed Total Funding Requirements for the period.

There is one interesting warning from Woods – that some of the planned initiatives may slip if their recruitment plans are delayed by the current recruitment challenges I know so many of the market are also facing. I doubt it would be accepted by the regulators as a valid reason for failing to meet one of their deadlines, but it is the reality of the current resourcing situation. A small side note is that the fees proposals from the PRA (see CP4/22) includes some quite significant increases to the proposed charging rate for staff, where their time is charged to firms for special project fees. That will be driven by the salaries they are expecting to pay and will affect firms looking to recruit and retain staff.

PRA Objectives And Strategy

The PRA has 3 objectives in the work it does to oversee insurance firms:

  • to promote the safety and soundness of regulated firms;
  • the protection of insurance policyholders; and
  • to facilitate effective competition in the market for services provided by PRA-authorised firms

A fourth objective is proposed as part of the Future Regulatory Framework – more on that later.

The PRA currently regulates 1432 firms, of which 652 are insurers – the dominance of the banking sector for the regulator continues and that is reflected in a number of key priorities for the year which have little to no bearing on the insurance sector. This review looks only at those that do affect insurance firms.

A final thought on the number of firms the PRA regulates – it says that 236 firms (insurers and banks) are currently in the Temporary Permissions Regime. One of its objectives is to increase international co-operation, so the workload around authorisations and permissions is unlikely to ease any time soon, which may be of concern to those dealing with such issues.

The PRA has set four strategic priorities for 2022/23. These are to:

  • retain and build on the strength of the banking and insurance sectors delivered by the financial crisis reforms;
  • be at the forefront of identifying new and emerging risks, and developing international policy;
  • support competitive and dynamic markets in the sectors that they regulate; and
  • run an inclusive, efficient, and modern regulator within the central bank.

We will look at the initiatives for each area of the plan separately.

Retain And Build On The Strength Of The Banking And Insurance Sectors Delivered By The Financial Crisis Reforms

There are three main strands to this section of the PRA plans:

Financial resilience

This is an area where insurers are very explicitly separated from banks in terms of the regulatory approach. This work will look at:

      • The continuation of work looking at the future of Solvency II. The PRA has listed the main elements it expects to consult on once HM Treasury completes its consultation on reforms to insurance regulation. These are:
        • a reduction in the level of the risk margin for long-term life insurance liabilities, making it less sensitive to interest rates;
        • supporting sustainable investment by adjusting the design and strengthening calibration of the matching adjustment to better reflect actual risks retained by insurers, in particular uncertainty over the future level of credit defaults and idiosyncratic risks in individual assets;
        • expanding the eligibility criteria for matching adjustment portfolios to include assets with prepayment options or variable construction phases, which will allow greater investment by the insurance sector in productive assets and in projects that support the transition of the economy to net zero;
        • expanding the eligibility criteria for matching adjustment portfolios to include liabilities exposed to morbidity risk, such as income protection products;
        • simplifying processes for the approval of internal models, and of matching adjustment eligibility for less complex assets, in order to remove barriers to investment and accommodate alternative risk assessment techniques for innovative assets; and
        • facilitating effective competition by raising the threshold for the application of Solvency II, introducing a mobilisation process for new insurers, and reducing capital and reporting requirements for incoming branches.
      • Stress Testing. The next test will launch in May 2022 covering the largest general & life insurers: “The exercise will assess sector resilience to severe but plausible adverse scenarios: for life insurers focussing on a severe market disruption to rates and liquidity, followed by a longevity shock; and for general insurers focussing on natural catastrophes and potential cyber-attacks.”
      • Internal Models. The PRA will continue its scrutiny of models used by insurers to quantify and manage their risks, recognising the limitations and costs of these models. It will also invest in its own quantitative and qualitative risk indicator frameworks.
      • Life Insurance. The PRA will closely monitor credit risk and firms’ exposure to credit downgrades and defaults.
      • General insurance. There are two key issues – the impact of economic inflation and (following the contract disputes on Covid BI claims) a planned assessment of how contract uncertainty risk is managed within general insurance firms.

Operational risk and resilience

Firms should by now be well advanced with their work on Operational Resilience. The first phase should have been completed by 31st March and the PRA will be looking at how firms delivered as well as assessing their progress towards the next deadline. Specifically, the PRA will be looking at:

      • how well firms implemented the Operational Resilience policy expectations ahead of the 31st March 2022 deadline;
      • assessing firms’ plans for the next phase of work due by 31st March 2025, namely their ability to deliver Important Business Services within impact tolerances;
      • the role of Critical Third Party service providers, work it will conduct jointly with the Bank of England & the FCA.

Governance & Risk Management

Data and reporting are the key themes here, and data will be a reference familiar to those who have looked at the recently issued 2022 FCA Business Plan in more detail.

      • There will be a focus on ensuring the PRA receive accurate, complete and timely regulatory reporting to help ensure they can deliver effective regulation. This seems to be driven primarily as a result of deficiencies within the banking sector, but insurers are very likely to be impacted by the change in approach.
      • There will be a focus on the process of data collection, working alongside the FCA to deliver transformation within the industry.

Be At The Forefront Of Identifying New And Emerging Risks, And Developing International Policy

The PRA recognise that the nature of risks is changing, something that is exacerbated with the drive from the Government to enlarge the UK presence and influence on and in markets worldwide. It’s a section that seems a little more vague on detail, perhaps as a result of the significant workload for the regulator dealing with the current international crisis in Ukraine, the first factor mentioned by them in the section. Aside from that, they key areas of focus will be:

Climate Change

Large firms and a sample of smaller firms will be asked to report on how they have embedded the management of climate-related financial risks into their risk management frameworks. From 2022, the PRA’s approach to climate-related financial risk will switch from assessing implementation, to actively supervising against the threats.

“…the PRA expects firms to refine, innovate, and integrate climate-related financial risk management practices, as regulators and firms collectively build their understanding of the risks, data, tools, and best practices”.


The PRA aims to be at the forefront of identifying and responding to the risks and opportunities faced by regulated firms as they seek to digitalise their processes to reduce costs, retain existing customers, and attract new customers through digital channels.

Financial inclusion is also a key focus arising from digitalisation, an area where the PRA is concerned about the risk of discrimination arising and an area which the FCA has firmly on its radar. The recent complaint from Citizens Advice: “Discriminatory pricing: Exploring the ‘ethnicity penalty’ in the insurance market” is certainly an issue that Insurers should consider carefully. Digitalisation is also an area where we expect to see more international co-operation as the issues are certainly not limited to the UK.

Artificial Intelligence (AI) And Machine Learning

A Discussion Paper on AI is expected from the PRA later in 2022 following the work of the AI Public-Private Forum (AIPPF) who published their report in February 2022.

Support Competitive And Dynamic Markets In The Sectors That We Regulate

The Future Regulatory Framework includes a proposed new secondary objective for the PRA, focused on facilitating international competitiveness and long-term growth. It is against that backdrop that much of the work in this area will evolve. The main strands of work planned are:

Regulatory Change

The future regulatory framework review: a new Financial Services Bill is expected to go before Parliament later in 2022.

Developing The PRA’s Policy Approach

The PRA will publish a Discussion Paper in 2022 setting out some views on the longer-term approach to prudential policymaking under the Future Regulatory Framework. A new website for the PRA rulebook is also promised in 2022, which will be welcomed by firms.

Strong And Simple Regime

The PRA promise to simplify and expedite the authorisations process and consult on a mobilisation regime that will reduce barriers to entry for new retail firms and raising thresholds to reduce the application of Solvency II requirements. After the completion of the government’s current review of Solvency II, the PRA will also consider the case for a simpler regime for smaller insurers and friendly societies.

Ease Of Entry And Exit

The issues around market entry have already been discussed. The focus here is on the way the PRA requires firms to plan their approach to wind-down and run-off planning. It will become part of the core supervisory activity. Firms should expect to be required to undertake some specific work here.

International Engagement

The PRA will expand the list of jurisdictions with which it will agree memorandums of understanding and look at how it promotes international collaboration. In line with both the market’s and government’s wishes post-Brexit to keep London competitive, firms can expect to see more international competition in the UK, as well as more opportunity for UK firms to compete internationally.

Run An Inclusive, Efficient, And Modern Regulator Within The Central Bank

This part of the plan mostly focuses on how the PRA will operate. But it is worth noting, consistent with statements made by the FCA, that the PRA is looking at giving more autonomy to staff to ensure that decision making takes place at the right level. The PRA is also looking to strengthen its supervisory approach by being more risk-based and flexible in the way it is resourced. It will deploy a more confident and consistent supervisory approach and make its governance and organisational structure more effective.

The way it enhances its data capabilities is also very similar to a theme adopted by the FCA. A learning programme to educate its staff on digital skills, looking at tools and technical knowledge, behaviour and business skills, and the digital economy is likely to lead to changes in the way PRA staff understand such issues and question firms.

Firms involved in the authorisations process will welcome a statement that the PRA will deliver enhancements to its authorisations process that will include an improved control framework and aims to drive up quality standards for core regulatory transactions and change management.

Regulated Fees And Levies: Rates Proposals 2022/23

The PRA have proposed an increased budget for 2022/23, with an increase in the Total Funding Requirement of 8%. The proposals include:

  • the fee rates to meet the PRA’s 2022/23 Annual Funding Requirement (AFR);
  • fees applicable to firms in the temporary regimes;
  • changes to the internal model application fees and the model maintenance fee;
  • changes to the special project fees for restructuring fees;
  • setting out how the PRA intends to distribute a surplus from the 2021/22 AFR (Chapter 3); and the retained penalties for 2021/22 (Chapter 4).

This proposal takes the form of a Consultation Paper which is relevant to all firms that currently pay PRA fees or are expecting to do so within the 2022/23 fee year. The consultation period closes on 20th May.

The Increase in funding requirements is driven by need to respond to the changing legal and regulatory regime, increased headcount and investment in data analytics and technology. As ever, the way the fees are allocated will result in some winners and losers – general insurers will see a slight increase in fees and Managing Agents at Lloyd’s will see a slight decrease.

There are also some specific changes for firms in the TPR, although firms currently benefitting from the discount for inward passporting from Gibraltar will continue to do so.

One positive is the surplus reported for 2021/2 which will result in some refunds to most firms.


With the FCA releasing their own Business Plan a few weeks ago (and you can read our views on this in the article “The FCA Strategy & 2022/23 Business Plan: A Tougher Regulatory Approach”), it is clear that the level of co-operation between the regulators is strong.

There are many consistent themes in the plans from the FCA and PRA, including a shared desire to move towards a more outcomes-based approach. In PRA terms, less fine detail in the rules. Data is another key theme and firms would be well advised to ensure they understand clearly not only how the PRA intends to make better use of data and the data it will require to do this, but also the way that they see their regulatory approach being shifted by the way insurance firms are using data, algorithms and AI to implement their own approach to risk selection and pricing.

There are many predictable continuations of existing themes in the plan – Operational Resilience is by no means ‘done’ and financially related climate change risks will continue to become a greater area of focus in the way the PRA looks at firm’s risk management frameworks.

There is opportunity – and threat – in the focus on the ways that the PRA can help drive competition as it looks to simplify and expedite the authorisations process with a specific focus on reducing the barriers to entry for retail firms and the work it is undertaking to support the ability of UK firms to compete abroad on a level playing field, and vice-versa. Firms should be prepared for the possibility of more competition from international firms entering the UK market.

Perhaps the biggest change we will see in the coming year is the impact of the Future Regulatory Framework. It was the first of 4 initiatives Sam Woods highlighted in his introduction and with the reference to a move towards a ‘more British style of rule making’ it seems clear that the government will be seeking to claim this as another Brexit benefit. Without wishing to stray into politics, our hope is that firms truly see the benefits of this change, with longer term stability in the regulatory regime allowing firms to invest with confidence.

If you would like to discuss the implication of any aspect of the PRA Business Plan for your own firm, please do speak with any member of the ICSR team.

Kenneth Underhill, Director

Kenneth Underhill


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