PS9/25 – Changes to the UK ISPV regulatory framework

1: Overview

1.1 This Prudential Regulation Authority (PRA) policy statement (PS) provides feedback to responses the PRA received to consultation paper (CP) 15/24 – Proposed changes to the UK Insurance Special Purpose Vehicles (UK ISPV) regulatory framework.

1.2 This PS marks an important step in the PRA’s ongoing intention to reform the functioning of the UK ISPV regulatory regime. The PRA considers that the proposed reforms will allow the UK to play a bigger role in the global Insurance Linked Security (ILS) market, supporting competitiveness and growth, while continuing to advance safety and soundness consistent with the PRA's primary and secondary objectives. The PRA will continue to work with HM Treasury (HMT) on further reforms to ensure that the regulatory and legislative frameworks are aligned to enable an internationally competitive sector whilst advancing the PRA’s objectives.

1.3 This PS contains the PRA’s final policy, as follows:

• amendments to the Insurance Special Purpose Vehicles Part (the ISPV Part) of the PRA Rulebook (the Rulebook) (Appendix 1)
• Supervisory statement (SS) 2/25: Prudential considerations for insurance and reinsurance undertakings when transferring risk to Special Purpose Vehicles (Appendix 3)
• Statement of policy (SoP): The PRA’s approach to authorising and supervising UK Insurance Special Purpose Vehicles (Appendix 2) (replacing in its entirety SS8/17, now deleted)

1.4 This PS is relevant to UK ISPVs and firms wishing to obtain authorisation to be a UK ISPV, UK Solvency II firms, the Society of Lloyd’s and its members and managing agents, (re)insurance groups, third country (re)insurance undertakings (including those that have a UK branch, third country branch undertakings), and UK insurance holding companies. The PS may be of particular importance to:

• Firms who wish to apply for, or have obtained, authorisation as a UK ISPV; and
• Firms seeking to use Special Purpose Vehicles for risk transfer.

1.5 In this PS and the appendices, the term UK ISPV (as defined in the Rulebook Glossary) refers to special purpose vehicles which are specifically authorised to carry out the regulated activity of insurance risk transformation in the UK. The term ‘special purpose vehicle’ (SPV) (as defined in the Rulebook Glossary) refers in more general terms to special purpose vehicles, which may be authorised either in or outside the UK.

1.6 An SPV is a vehicle which is authorised to securitise insurance risk. Generally, (re)insurers transfer insurance risk to the SPV, which in turn issues an instrument (ILS) which allows investors from the capital markets to fund the risk exposure. SPVs are used by (re)insurers as an alternative to traditional reinsurance methods.

Background

1.7 In CP15/24, the PRA proposed changes to the UK ISPV regime as follows:

a. Structural changes to:

• make clear that UK ISPVs can count realised investment returns that are retained by the vehicle to cover the aggregate maximum risk exposure (AMRE) of a risk transfer arrangement and that the AMRE may increase over time commensurate with the realisation of investment returns that are retained in the vehicle;
• amend PRA rules to disapply the requirement that UK multi-arrangement ISPVs (UK MISPVs) must be formed as Protected Cell Companies (PCCs) in cases where they assume risks under more than one separate risk transformation transaction and where those separate transactions constitute a single contractual arrangement (as defined in the PRA Rulebook Glossary);
• allow UK ISPVs to make use of grace periods in relation to the fully funded at all times (FFAAT) requirement in some scenarios; and
• clarify the use of Limited Recourse Clauses (LRCs) by UK ISPVs.

b. Process changes to:

• speed up authorisation, via an ‘accelerated pathway’, of certain UK ISPV applications which meet criteria set out in the proposed new SoP (eg some types of catastrophe bonds, or cat bonds); and
• simplify the authorisation of all other UK ISPVs.

c. Updates to PRA expectations of PRA authorised (re)insurers ceding to SPVs to:

• introduce general expectations for UK (re)insurers using SPVs as risk mitigation; and
• clarify expectations with reference to the use of SPVs to transfer long term insurance business risks that are subject to material market and credit risk.

d. Changes to the Senior Managers and Certification Regime (SM&CR):

• Creation of a new Senior Management Function (SMF) specifically for UK ISPVs, leading to fewer SMF applications being required for UK ISPVs.

e. Consequential changes to:

• Improve clarity and to reflect feedback received in CP5/24 – Review of Solvency II: Restatement of assimilated law that was beyond the scope of that consultation (as noted in Chapter 11 of PS15/24 – Review of Solvency II: Restatement of assimilated law | Bank of England).

1.8 In determining its final policy, the PRA considered representations received in response to its consultation (‘responses’), publishing in this PS an account of them and the PRA’s response to them (‘feedback’). Details of any significant changes are also published in this document. In this PS, the ‘Summary of responses’ section of this chapter contains a general account of the representations made in response to the CP and the ‘Feedback to responses’ chapter contains the PRA’s feedback.

1.9 In carrying out its policy making functions, the PRA is required to have regard to various matters. In CP15/24, the PRA explained how it had regard to the most relevant of these matters in relation to the proposed policy. The ‘Changes to draft policy’ section of this chapter refers to that explanation, taking into account consultation responses where relevant.

Summary of responses

1.10 The PRA received six responses to the CP.^{footnote [1]} Respondents generally welcomed and supported the PRA’s proposals, viewing them as a positive step forward in revitalising the UK ISPV regime. Several respondents noted that they expect the proposals to stimulate UK activity for ILS transactions, supporting competitiveness and growth in the wider insurance sector.

1.11 While respondents were positive overall, some also noted that the proposed changes on their own may not be sufficient to bring new business to the UK. The PRA is actively looking at how to address the remaining key barriers noted by respondents, and where relevant is working with the necessary stakeholders, as addressed in paragraph 1.20 of this PS.

1.12 In addition, respondents made some observations and requests for clarification which are set out in Chapter 2.

Changes to draft policy

1.13 Following consideration of respondents’ comments, the PRA has made one change to the substance of the draft policy proposed in CP15/24.^{footnote [2]} Specifically, paragraph 2.42 in the SoP has been added to clarify the PRA’s policy intent that where the PRA expects an accelerated pathway applicant to share a legal opinion as part of the application documentation,^{footnote [3]} the PRA considers that if final documentation is not available at the point of application, a draft legal opinion will be accepted.

1.14 The PRA believes that this amendment is of low materiality and will have no impact on firms beyond that envisaged in the draft policy set out in CP15/24.

Accountability framework

1.15 When making rules, the PRA is required to comply with several legal obligations including explanation of the PRA’s reasons for considering that making the proposed rules is compatible with its objectives. In CP15/24, the PRA published its explanation of why the rules proposed by the CP were compatible with its objectives and with its duty to have regard to the regulatory principles.^{footnote [4]} The PRA considers that its analysis of its objectives in CP15/24 remains appropriate given that it has not made any material changes to the draft policy proposed in CP15/24.

1.16 In carrying out its policy and rule-making functions, the PRA is required to have regard to various matters. In Chapters 1 and 7 of CP15/24, the PRA explained how it had regard to the most relevant of these matters in relation to the proposed policy and rules. The PRA considers that its analysis of its have regards in CP15/24 remains appropriate given that it has not made any material changes to the draft policy proposed in CP15/24.

Implementation and next steps

1.17 The implementation date for final rules and policy material reflecting policy changes set out in this PS is 24 July 2025. Firms are expected to meet the requirements and expectations set out in the Appendices of this PS from that date.

1.18 The PRA will publish a final reporting taxonomy after the publication of this PS reflecting the final policy and rules set out in this PS. This Bank of England authored taxonomy (Bank of England Insurance taxonomy v2.1) will include all UK ISPV reporting from 31 December 2025.

1.19 The PRA has also updated its UK ISPV application materials, including forms for those wishing to apply for the accelerated pathway. These materials can be found on the PRA’s UK ISPV Authorisations webpage.

1.20 As noted in CP15/24, the PRA also recognises that some changes which could be useful to the functioning of the UK ISPV Framework are not within its power to implement on its own. The PRA will continue to engage with the necessary stakeholders to determine the best way to proceed on such issues.

1.21 The PRA notes that HMT released a consultation on 15^th July 2025 on Changes to the Risk Transformation Regulations which seeks to address these legislative barriers and sets out further steps to develop the UK ILS market.^{footnote [5]} The PRA is considering the changes proposed by HMT and the potential to further develop its own policies in the light of those proposed changes in a way that advances all of its objectives. The PRA is committed to work closely with HMT and encourages industry participants to engage with both the HMT consultation and the PRA directly to enable future policy development.

1.22 The PRA recognises that there may be some limited situations in which aspects of Rule 2.2A(3) of the ISPV Part of the Rulebook (see Appendix 1) regarding the restriction on co-mingling of assets covering separate risk transfers, particularly those where there is a single investor supporting multiple risk transformation transactions, may be unduly burdensome. The PRA encourages firms to discuss this issue with supervisory contacts if they feel they are affected.

1.23 Unless otherwise stated, any remaining references to EU or assimilated legislation refer to the version of that legislation which forms part of assimilated law.^{footnote [6]}

2: Feedback to responses

2.1 Before making any proposed rules, the PRA is required by FSMA to have regard to any representations made to it in response to the consultation, and to publish an account, in general terms, of those representations and its feedback to them.^{footnote [7]}

2.2 The PRA has considered the representations received in response to the CP. This chapter sets out the PRA’s feedback to those responses, and its final decisions.

2.3 The sections below have been structured broadly along the same lines as the chapters of the CP, with some areas rearranged to better respond to related issues. The responses have been grouped as follows:

• Aggregate Maximum Risk Exposure (AMRE);
• Grace periods;
• Accelerated pathway;
• Simplification of the authorisation process;
• Restriction on the transfer of annuities and similar risks to SPVs; and
• General points raised by respondents.

Aggregate Maximum Risk Exposure (AMRE)

2.4 The PRA proposed to clarify that UK ISPVs can count realised investment returns that are retained by the vehicle to cover the AMRE, and that the AMRE may increase over time commensurate with the realisation of investment returns that are retained in the vehicle.

2.5 One respondent proposed allowing firms to count retained realised profits as part of the coverage for the AMRE, and suggested this could provide additional flexibility in fund management and streamline the process during renewals or contract endorsements.

2.6 After considering the response, the PRA has decided not to change the draft policy for AMRE set out in CP15/24. This is because the policy change suggested by the respondent would require further development and engagement to define the criteria and to prevent premature recognition of underwriting experience. The PRA may consider this proposal as part of future policy development. The PRA will continue to engage with industry, including through forums such as Subject Expert Groups (SEGs), to identify opportunities for future policy development in this area, where appropriate.

2.7 One respondent asked for clarification on how the AMRE proposal impacts the ability to use investment returns to cover expense funding requirements.

2.8 Depending on the contractual arrangements between the UK ISPV, the cedant and the investor(s), expenses could fall within the scope of the carve-out set out in the Glossary definition of ‘aggregate maximum risk exposure’. Expenses that the UK ISPV may incur that do not fall within the scope of the carve-out will need to be included in the AMRE, and the UK ISPV must be fully funded at least up to the AMRE at all times. The assets that the UK ISPV can use to back the AMRE may include realised investment returns that are retained by the vehicle.

Grace periods

2.9 In Proposal 3 of the CP, the PRA proposed to modify the Rulebook to explicitly allow for a 30-business day contractual ‘grace period’ at the start of a risk transformation transaction, subject to certain criteria.

2.10 One respondent requested that the PRA expand on the criteria which must be met in order for a grace period to be allowed, as referenced in paragraph 2.14 of CP15/24.

2.11 After considering the response, the PRA directs the respondent to Rule 2.1B of the ISPV Part of the Rulebook (see Appendix 1) which defines the requirements to be satisfied to apply a grace period. A summary of the requirements is provided below; full details are in Appendix 1:

• The risk transformation transaction must clearly define any applicable grace period and detail its implications on the UK ISPV's payment obligations to the cedant.
• The UK ISPV must have effective arrangements in place to mitigate the risk of insufficient financial resources to meet its payment obligations to the cedant during the grace period.

2.12 One respondent requested clarification on whether the PRA has a view on the form and documentation of joint consent between investors and the cedant for agreeing to a grace period, as referenced in paragraph 2.15 of CP15/24.

2.13 After considering the response, the PRA confirms that it does not have a view on the form of documentation. However, it is important that there is an agreement included in the appropriate contracts between the parties involved.

Accelerated pathway

2.14 The PRA proposed to create an accelerated pathway for certain UK ISPVs, under which the PRA would consider applications with defined criteria and, where satisfied, issue approvals within 10 working days of a completed application being submitted to the PRA.

2.15 One respondent requested further clarity on the requirement for a legal opinion, particularly regarding its timing in relation to UK ISPV authorisation. The respondent noted that a legal opinion is typically not issued in private collateralised transactions and asked if the PRA has considered the impact of this requirement on such structures.

2.16 After considering the response, the PRA confirms that transaction documentation provided as part of the accelerated pathway authorisation application may be in draft form. The PRA has added a paragraph to the SoP, paragraph 2.42, which confirms that while the PRA expects final documentation to be submitted with accelerated pathway applications where possible, where this is not available at the point of application, draft transaction documentation will be accepted. The PRA further confirms in 2.42 that it would not expect changes to be made during the submission phase where this could impact how the relevant requirements are proposed to be met. In respect of the need for a legal opinion under the accelerated pathway (paragraph 2.37(e) of the SoP), the PRA notes that private placements (such as collateralised reinsurance transactions) are in any event unlikely to qualify for the accelerated pathway under the conditions and features set out in 2.37 and 2.38 of the SoP, in particular as the funding for the securities would not arise from a syndicated placement marketed via one or more investment banks.

Simplification of the authorisation process

2.17 The PRA proposed to simplify the authorisation process for standard UK ISPVs.

2.18 One respondent argued that the Variation of Permission (VoP) authorisation timelines should be expedited alongside other UK ISPV authorisations. In this respondent’s view, without such a change the UK may struggle to position itself as a competitive and responsive SPV hub.

2.19 After considering this response, the PRA has decided not to change the draft policy in this area. The PRA considers that VoP application timelines differ on a case-by-case basis depending on the scale and complexity of the VoP. The PRA encourages firms to engage in pre-application discussions – where such effective engagement takes place, experience shows that faster authorisation decisions are more likely to be feasible. The PRA will continue to engage with industry, including through forums such as SEGs, to identify opportunities for future policy development in this area, where appropriate.

2.20 One respondent asked for further clarity on the guidance referred to in paragraph 3.7 of CP15/24, related to how the PRA approaches authorisation and supervision of UK ISPVs.

2.21 After considering this response, the PRA directs the respondent to the detailed guidance and appendices within the SoP for further details. The SoP is included in Appendix 2 of this PS and all chapters of the SoP (including the appendices) are relevant to the respondent’s request, as they outline the PRA’s approach to the authorisation and supervision of UK ISPVs in more detail.

Restriction on the transfer of annuities and similar risks to SPVs

2.22 The PRA proposed restrictions on the transfer of annuities and similar risks to SPVs in the proposed new SS (2/25): Prudential considerations for insurance and reinsurance undertakings when transferring risk to Special Purpose Vehicles.

2.23 One respondent welcomed the clarity provided on the PRA’s expectations for the transfer of annuity-type business to SPVs. The respondent also highlighted that reinsurance counterparty concentrations remain a key focus for the industry and encouraged the PRA to consider supporting international competitiveness in the annuities space. Another respondent, while acknowledging the challenges involved in annuity-type transactions, urged the PRA to not rule them out completely at this stage. The respondent considered that these transactions had potential benefits for the competitiveness and growth of the UK insurance sector.

2.24 After considering the response, the PRA has decided not to change the draft policy in this area. While the expectations set out in paragraphs 2.12 to 2.15 of SS2/25 do not amount to a prohibition, the PRA anticipates significant challenges in using SPVs for annuity and similar business under the current regime. As the PRA continues to look at risk transfer for annuities more generally, it may consider developing further guidance. The PRA will continue to engage with industry, including through forums such as SEGs, to identify opportunities for future policy development in this area.

General points raised by respondents

2.25 Three respondents suggested that, in the context of the global landscape for SPV issuance, the package of reforms proposed in CP15/24 would not, by themselves, be sufficient to transform the UK into a leading global SPV centre. Two respondents highlighted the need for further reforms relating to long-term insurance risks and greater openness to casualty ILS to achieve this.

2.26 The PRA clarifies that the UK ISPV regime already allows casualty ILS, and some of the reforms proposed in CP15/24, such as the AMRE proposal, are designed to support these types of transactions. The PRA considers that the comments regarding further reforms go beyond the scope of CP15/24 and the current statutory framework. Nonetheless, and noting the aforementioned HMT consultation, the PRA will consider additional reforms to the UK ISPV regime to reflect legislative changes as part of future policy development, and will continue to engage with industry, including through forums such as SEGs, to identify opportunities for future policy development.

2.27 One respondent acknowledged the need for a proportionate, facilitative approach to regulation of UK ISPVs, and noted that this was equally applicable to the FCA as joint regulator to enable the PRA’s reforms to work.

2.28 The PRA notes that FSMA sets out obligations for both the PRA and the FCA relating to authorisations of ISPVs. The PRA and the FCA work closely in these areas and will continue to co-ordinate their activity in future ISPV applications.