DP2/25 – Alternative Life Capital: Supporting innovation in the life insurance sector
Executive Summary
The PRA's Discussion Paper 2/25 (published November 14, 2025) invites UK life insurers to provide feedback on potential regulatory reforms that would enable them to access **alternative forms of capital through risk transfer to capital markets**, outside traditional equity and debt issuance. This initiative aims to address capital constraints in the UK life insurance sector while maintaining policyholder protection and supporting long-term economic growth.
What Changed
The PRA is considering policy reforms centered on six core principles: Capital Quality & Quantity: Alternative life capital structures must not lower the quality or quantity of capital required to support insurance risks. Risk Transfer Focus: Structures should enable patient capital investment aligned with long-term liability profiles, allowing investors to forgo immediate returns for substantial future gains. Capital Relief Priority: Alternative life capital should predominantly deliver capital relief proportionate to actual risk transfer—not balance sheet financing or illiquidity premiums. Supervisory Flexibility: The PRA is exploring whether to focus supervision on the cedant's (insurer's) recognition of risk mitigation effects rather than prescribing specific vehicle structures. V
Suggested Considerations
- *For UK life insurers:
- *Assess capital needs: Evaluate whether alternative capital structures could address your firm's capital constraints, risk management objectives, or product innovation goals.
- *Prepare consultation response: Submit detailed feedback to the PRA by 6 February 2026 addressing the 15 consultation questions, particularly:
- Q12: Key risks from increased capital flexibility and mitigation approaches
- Q13: Views on balancing ease of authorisation against ongoing supervision intensity
- Q14: Potential approaches for valuing risk transfer
Key Dates
Compliance Impact
Urgency: HIGH
Who is Affected
References
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Summary
Discussion paper 2/25