Executive Summary
- What is new: The PRA has published a policy statement finalising reforms to the UK insurance special purpose vehicles regulatory framework, including changes to funding, grace periods, authorisation and contract flexibility.
- Why it matters: These reforms aim to enhance the attractiveness and competitiveness of UK ISPVs while maintaining safety standards, and are relevant to UK insurance companies and investors in ISPVs.
- What to do next: Companies may want to review the new rules and supervisory statements, assess eligibility for the accelerated authorisation process, and ensure compliance with updated documentation and risk management expectations.
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The UK Prudential Regulation Authority (PRA) has published a policy statement (PS9/25) focusing on changes to the regulatory framework for UK insurance special purpose vehicles (ISPVs).
Published on 24 July 2025, PS9/25 finalises the proposed policy and rules set out under the PRA’s November 2024 Consultation Paper 15/24 (CP15/24).
These reforms aim to enable the UK to play a larger role in the global insurance linked security market by making it easier and more attractive to set up ISPVs — thereby supporting competitiveness and growth — while continuing to advance a regulatory regime with safety and soundness, consistent with the PRA’s objectives.
Nonetheless, the reforms came with a sting in the tail in relation to the use of ISPVs for UK annuity risk (discussed in more detail below).
The changes outlined under PS9/25 took immediate effect from 24 July 2025 through:
- Amendments to rules in the ISPV Part of the PRA Rulebook.
- Supervisory Statement 2/25 (SS2/25).
- A Statement of Policy setting out the PRA’s approach to authorising and supervising the ISPVs.
We examine each of the key reforms and analyse the main considerations.
Realised Investment Returns Can Now Cover Aggregate Maximum Risk Exposure
The PRA recognises that the current policy framework requiring the aggregate maximum risk exposure (AMRE) of ISPVs to be fully funded at all times (FFAAT) may cause limitations to multiyear risk transfer arrangements due to the size of upfront investment required to meet FFAAT.
Now the PRA allows the contractually agreed AMRE of an ISPV with a multiyear contract to increase over time to reflect the realised returns from investment of the ISPV funds. This is subject to a maximum period of seven years during the life cycle of the ISPV.
This reform allows an investor to avoid having capital unnecessarily restricted in the ISPV, thereby increasing the investor’s internal rate of return. Likewise, by using realised investment returns retained by the vehicle to cover the AMRE, investors may not be required to inject additional funds to cover an increase in the AMRE over time.1
The PRA expects an ISPV to properly document any increase in the AMRE. Any such increase must only be effective if and when the corresponding funds are paid in on realisation.2
Grace Period Allowed at the Start of a Risk Transformation Transaction
The PRA Rulebook has been amended to allow for a 30-business-day contractual grace period for the ISPV to be FFAAT, with an aim to improve flexibility during rollover periods amid renewal of risk transfer arrangements.
This reform provides ISPVs buffer time to complete transaction execution and funding and, where applicable, arrange for collateral rollover. It also aligns the UK ISPV regime with equivalent ones in other jurisdictions and other forms of special purpose vehicle in the UK.3
In practise, ISPVs need to pay attention to the following:4
- This grace period and its implications on the ISPV’s payment obligations to the cedant must be clearly defined in the risk transformation transaction.
- Effective risk mitigation arrangements must be in place during the grace period.
Accelerated Pathway Authorisation Process Available for Certain ISPVs
The PRA introduces an accelerated pathway for standard ISPVs, which significantly shortens the PRA’s commitment to process authorisations, from four to six weeks to 10 days.5 To participate in the accelerated pathway, the ISPV must have the following characteristics, amongst others:6
- Risk transferred being nonlife insurance with a clearly defined loss trigger as per market standards.
- Maximum of 15-year term.
- Funding for securities arising from a syndicated placement with an investment bank or broker-dealer underwriting the issuance on a best efforts basis.
- Funding obtained from the issuance of debt securities.
- A legal opinion is prepared for the UK ISPV and other relevant stakeholders to the effect that:
- the transaction documents conform in all material respects to their description in the offering circular; and
- the transaction documents that are core to the instrument’s structure are enforceable,
and such legal opinion is shared to the PRA as part of the application documentation.
The PRA made one change to the CP15/24, clarifying that if final documentation is not available at the time an application is made under the accelerated pathway, a draft legal opinion will be accepted.7
For ISPVs ineligible for the accelerated pathway, the PRA aims to simplify the process by replacing the existing list of compulsory supporting documentation with an indicative list. Applicants can determine what constitutes sufficient supporting documentation. This potentially reduces the burden for both the applicants and the PRA.8
However, firms should note that the timeline for Variation of Permission (VoP) applications remains dependent on the scale and complexity of each VoP application. Firms are encouraged to engage in preapplication discussions with PRA, while catering for a reasonable time frame for the PRA to process the application.9
ISPVs Can Undertake Multiple Contracts Under the Same Contractual Arrangement
Prior to these reforms, an ISPV entering into more than one risk transfer contract with the same entity would have had to be structured as a protected cell company (PCC), with individual cells set up in respect of each transaction.
The PRA now allows an ISPV to enter into more than one risk transformation transaction, constituted as a single contractual arrangement without needing to be formed as a PCC. This provides flexibility especially for (i) renewals of existing contracts and (ii) risk transfers with multiple tranches to cater for the varied risk appetites of distinct investors.10
Prudential Considerations When Transferring Risk to ISPVs
SS2/25 sets out the PRA’s expectations in respect of the transfer of risk by firms to ISPVs. Some key points to note:
- Limited recourse clauses (LRCs): The PRA recognises and does not prohibit the use of LRCs in reinsurance arrangements. LRCs have the effect of limiting the relevant ISPV’s liabilities to the value of its assets or collateral. As a risk mitigation measure, the PRA sets out its expectation that LRCs are not to be used in the absence of a sound management framework and investment strategy.11
- Transfer of annuities and similar risks: While it is not a strict prohibition, the PRA does not expect firms to transfer annuities or risks of similar characteristics to ISPVs. The PRA is of the view that such a transfer would require the ISPV to invest in assets with significant credit and market risks, which presents a higher risk of deterioration in asset values. This comes as a further blow to the UK life industry, which had been hoping to be able to use ISPVs as a form of onshore life sidecar, in light of the difficulty of using funded reinsurance as a form of capital relief. An effect of this may be to help accelerate the remaining independent UK annuity providers into deep-pocketed private capital ownership.
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1 Para 2.1-2.5, CP15/24.
2 Para 3.13, Statement of Policy.
3 Para 2.11, CP15/24.
4 Para 2.11, PS9/25.
5 Para 3.1, CP15/24.
6 Para 2.37, Statement of Policy.
7 Para 1.13, 1.14, PS9/25.
8 Para 2.14, Statement of Policy.
9 Para 2.32, Statement of Policy; Para 2.17 – 2.21, PS9/25.
10 Para 2.6 – 2.10, CP15/24.
11 Para 3.14, Statement of Policy.
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