SS2/25: Prudential considerations for insurance and reinsurance undertakings when transferring risk to Special Purpose Vehicles

What Changed

• - Risk Transfer Validation: Firms must demonstrate that SPV risk transfers provide genuine economic risk transfer (ERT), not just accounting or regulatory capital relief, with PRA emphasizing substance over form (e.g., no "orphan" SPVs without genuin
• Capital Relief Criteria: Introduces stricter tests for recognizing capital relief, including full collateralization requirements, independent third-party guarantees, and prohibitions on circular reinsurance structures where the cedent retains excessi
• Governance and Documentation: Mandates robust board-level oversight, detailed transaction documentation (including stress testing and scenario analysis), and pre-transaction PRA notification for material transfers (>10% of SCR).
• SPV Oversight: SPVs must be structured to operate independently, with PRA reserving rights to challenge approvals if governance is inadequate or conflicts of interest arise.
• Alignment with Solvency II: Builds on existing rules (e.g., Article 211-213) but provides PRA-specific interpretations, including updated expectations on limited risk appetite and post-transfer monitoring. No fundamental overhaul of Solvency II, but

Suggested Considerations

• Immediate Review (by Q1 2026): Conduct gap analysis of all existing SPV portfolios against SS2/25 criteria, documenting ERT evidence and collateral adequacy.
• Governance Updates: Enhance board policies for SPV approvals, including mandatory stress testing (e.g., 1-in-200 year events) and independent validation by external actuaries.
• Pre-Transaction Processes: Implement PRA notification templates for transfers >10% SCR; prepare deal packs with legal opinions on SPV independence.
• Reporting Enhancements: Update internal systems for RFR disclosures on SPV exposures; train Senior Insurance Managers (SIMs) on accountability under SIMR.
• Remediation: For non-compliant legacy SPVs, unwind or restructure by June 2027, notifying PRA of plans by March 2027.
• Monitoring: Establish ongoing surveillance for SPV performance, with quarterly reviews escalating material deviations.

Who is Affected