The future of international insurance in the UK − speech by Alan Sheppard

Given at the Westminster Business Forum
Published on 21 April 2022

Alan Sheppard discusses how the Prudential Regulation Authority (PRA) can foster the role of the UK as an international centre for insurance and reinsurance business.

He focuses on:

  • the importance of prudential standards
  • the PRA’s approach to supervising incoming branches
  • some reforms the PRA is planning in order to make it easier to put capital to work in the London Market


Thank you for the invitation to address this conference. I would like to speak today about the UK as an international centre for insurance and reinsurance business, and how as a regulator the PRA can foster that role. I will cover the importance of prudential standards, our approach to supervising incoming branches, and some reforms we are planning in order to make it easier to put capital to work in the London Market.

Thanks to international business, the UK has the largest insurance sector relative to GDP of any G20 nation. The London Market in international insurance and reinsurance writes over a hundred billion dollars of premiumsfootnote [1]. The UK hosts well over two hundred branches or subsidiaries of non-UK life and general insurance groups.

What draws that business and those firms to this country? Perhaps the single most important factor is the store of social and human capital that we have here: a tradition stretching back to the establishment by Edward Lloyd of his eponymous coffee shop on Tower Street in 1686, and a latter day, unrivalled pool of expertise spanning underwriting, risk management, financing, governance, and many other disciplines. But infrastructure is also key, by which I mean the legal, financial, and regulatory structures that allow individuals and businesses to transact high value and long term business here with confidence. Robust prudential regulation holds firms to the standards of financial resilience, risk management, and governance that are needed to allow them to fully and sustainably support the wider economy. This is an essential part of that infrastructure and will remain at the heart of any reforms that the PRA is responsible for.

International standards

Part of that robustness is meeting minimum international standards. The UK has played a leading role in the development of international standards for insurance, and we are committed to continuing to do so.

The UK’s key role as a major international insurance centre makes it doubly important that the UK maintains high standards and retains its reputation internationally as a trusted market for international insurers and their customers to operate within – to attract business and to set the example that others look to the UK for. So we were pleased with the International Monetary Fund’s (IMF) positive assessment published earlier this month, which noted the sophistication of our regulatory framework, the leading role we play in supervising the sector, and the very high observance of the International Association of Insurance Supervisors’ (IAIS) Insurance Core Principlesfootnote [2].

Support for innovation

But high standards need not mean a rigid, one-size-fits-all approach. On the contrary, openness to innovation is a key feature of the UK’s international insurance activity, and a flexible and proportionate approach to prudential regulation supports that. Indeed one of the most important drivers of the government’s goal of shifting the detail of regulation from law into regulators’ rulebooks is to give us greater agility in reacting to changes in the market and new opportunities.

Our approach to underwriting of cyber risk is a good example. The London Market has developed and grown a new class of insurance to cover the societal demand for pooling of cyber risk. The PRA has taken a proportionate approach to this growth, looking to the firms to set their own risk appetite, develop systems to measure and manage the risk – whilst recognising the challenge of finding data for new risks – and put in place appropriate capital. Later this year, we will be asking the firms to submit stress tests on this businessfootnote [3].

Supervision of third country branches

A second example, which I would like to cover in more detail, is our approach to welcoming branches of international businesses to the UK.

Temporary permissions regime

Since the UK left the European Union, we have seen firms continue to establish operations here to take advantage of concentration of skills, proximity of fellow insurers, and strong legal and regulatory systems.

The first step was the Temporary Permissions Regime or TPR which allowed the safe and sound transition of around 190 firms from 20 countries, which had previously operated in the UK under EU passporting rules. The TPR is doing its job: allowing firms time and space to continue carrying out business in the UK in the longer term, and to operate in the UK for a limited period while they reposition themselves and seek authorisation from UK regulators. We have seen a dazzling array of business models, spanning life and general insurance, a mix of wholesale and retail, and a good number of reinsurers. The PRA welcomes firms in all shapes and sizes!

The next step, of permanent authorisation, has already begun. We expect about 130 firms to submit applications to operate here as a third-country branch. So far, we have received in excess of 80 applications, have made 19 approvals, have a pipeline of as many again due decisions imminently, and have allocated an application timetable to all to give certainty over the timing of the process.

Future approach to third-country branches

These authorisations represent a step change in the PRA’s supervisory responsibility. Many firms branching in from the EEA conduct small amounts of business in the UK and pose a relatively small risk to PRA objectives on an individual basis. But the largest and most complex have sufficient potential impact on financial stability and UK policyholder protection that they require immediate, tailored supervisory oversight by the PRA. This is where we have focussed, and will continue to focus our host supervision.

There are advantages in the branch model for both insurers and regulators, not least that duplication of supervisory activity is reduced. In order to maximise those advantages, a key plank of our approach is to invest heavily in constructive relationships with home supervisors, allowing us to place reliance on home supervision wherever that is both possible and prudent, in view of the nature and scale of activity undertaken by each branch.

Engagement with EEA home supervisors has been constructive, and we are working hard to establish ‘split of responsibilities’ agreements. We see these agreements as a pragmatic, proportionate and effective way of ensuring that we (as host) and the home supervisor have clarity on who will typically undertake performance of respective supervisory tasks and responsibilities, on the reliance home and host may place on each other, on co-operation and information sharing, and on how we will arrive at a shared view of the risks faced by each legal entity.

A proportionate approach

We have already taken a number of practical steps to relieve third country branches of unnecessary requirements and burdens. Transitional relief on quantitative reporting for firms in the TPR expired at the end of last month, which gave firms fifteen months to implement systems to undertake reporting. We recently contacted firms to remind them of this, and it is worth noting that our discussions with branch managers indicate that they are on track to deliver on their reporting requirements.

To ease the burden on firms, we have exercised our existing powers to waive branch capital requirements for pure reinsurance third country branches. We have also acted quickly in response to concerns raised by a number of firms regarding “reverse branch activity” – that is activity undertaken in the UK to enable business written or booked elsewhere but that, thanks to the activity-based nature of the UK regulatory perimeter, would be captured on UK branch balance sheets. The application of full third-country branch requirements, including calculating branch capital, to this non-UK risk is likely to be disproportionate, so we now offer eligible firms, a modification by consent which allows branches to exclude risks outside the UK when calculating technical provisions and capital for the branch. And where third-country insurance branches exclusively write risks that are not located in the UK, we will also waive some reporting requirements.

Branches have also benefitted from cuts that the PRA has already proposed to reporting requirements for all smaller firms. But there is more to come. Branch capital calculation and reporting is one of the areas being looked at in the government’s review of
Solvency 2. Although we cannot front run the outcome of that work, I would like to highlight the proposal to remove the requirement to calculate branch capital, on the grounds that it offers limited supervisory benefit.

In summary, the PRA’s approach to third country branches is to build and rely on strong working relationships with home supervisors and to restrict local requirements to the minimum necessary. I believe this will make the UK an exceptionally welcoming environment for cross-border insurance activity, and maintain a thriving, competitive market here.

The London Market

Branches operate across the full spectrum of insurance: retail and wholesale; life and general. For the rest of my remarks I will focus on the wholesale insurance and reinsurance sector with which London is synonymous in insurance circles.

As a regulator we want to play our part in facilitating investment of new capital in London and the expansion of business done here – regulators do quite like to have things to regulate, after all! But I am conscious that this is a highly contested market internationally, and there is a widespread perception that it has become relatively difficult to start new ventures in London, be they those backed by traditional capital, or the more innovative insurance-linked securities. I don’t think that that perception is entirely fair: there are recent examples of UK regulators moving swiftly to enable the investment of substantial capital in the traditional insurance market, without compromising prudential standards. But, fairly or unfairly, the UK’s financial regulators have acquired something of a reputation for being relatively slow and inflexible, and of engaging in excessive scrutiny of detail without due proportionality – and I am often told when I speak to market participants that that perception is deterring some businesses from even attempting to locate new ventures in London.

To those businesses I would first say – just try us. Come and talk to us, and you might be surprised at the difference between reality and perception, even under the current processes. And for our part, we are planning changes in our approaches to authorisation of traditional wholesale insurance ventures, and insurance special purpose vehicles (ISPV). We believe these changes have the potential to bring much greater flexibility and speed to the business of locating in London.

Reforms to our approach to insurance-linked securities (ILS)

Starting with innovative capital and specifically the insurance-linked securities market, there has been a gentle flow of transactions in London since we established a bespoke ILS regime in 2017, but it is fair to say that volumes have been disappointing, and not as high as some other, relatively new centres have achieved. We have been engaging with industry to understand why this is, and a number of themes have emerged concerning the PRA’s authorisation process: the length of time required for the PRA to process ISPV applications; uncertainty of outcome; and costs incurred, specifically the time and resource needed by applicants to complete an ISPV application to the level of detail required for PRA review.

To address this feedback, the PRA intends to develop a ‘green channel’ for a category of ‘standard’, short-tail, general insurance structures. This green channel will give applicants more certainty over the outcome earlier in the process, and a faster decision. PRA review will focus on the key transaction documents and clauses needed to demonstrate that mandatory authorisation conditions are met, ensuring that we take a more proportionate view of the risks posed by these structures. We also plan to consult later this year on changes to the relevant supervisory statement to clarify and strengthen our approach to the regime in the light of the feedback we have been given.

Authorising traditional entities: a new approach

Turning to traditional capital, we would like to build on the way in which we have started to evolve our approach in recent years for sizeable investments proposed by participants in the wholesale insurance market with a highly credible track record. The new approach will be designed to address three areas:

  • the speed of the authorisation process;
  • the level of business plan review; and
  • the level of documentation required at the point of engagement with the PRA.

We know that a critical factor in choosing where to locate a new venture is having confidence that the regulator will engage with an application swiftly. Firms want to know that they will receive a decision in time to make the most of business opportunities in a fast-moving market, and through this pathway we aim to provide that confidence. There is also a circularity to be overcome: regulators requiring capital to be committed and executives in place before an application is considered; but capital providers and individuals not willing to commit whilst there remains high uncertainty over the outcome of, and timeline for, authorisation. By reviewing applications in a proportionate way and initially on the basis of preliminary information, we believe that we can move more quickly to identify prudential concerns that need to be addressed, to resolve specific issues, and to give clearer guidance that reduces uncertainty and thus unlocks capital and staffing commitments, and move more swiftly to taking decisions on applications. We will achieve this by taking account of the nature of the underlying business, the experience of the proposed members of the executive and the Board, the clarity of the plan to develop the business and its operations during the initial set up phase, and the availability of material capital levels to deal with any issues that arise.

This approach will not represent a weakening of the high standards that are such an important part of London’s success as a wholesale insurance market, and which further the PRA’s primary objectives. What it will represent is a different way for us to achieve assurance that those standards are met when an application meets certain criteria, and in doing so will further the PRA’s secondary competition objective. It will not be for everyone. It will apply exclusively to wholesale insurance business – nothing that qualifies for protection by the Financial Services Compensation Scheme will qualify. Within that, in order to be able move swiftly and on the basis of preliminary information and arrangements, the PRA will need to be satisfied, for example, that sourcing of substantial capital is already well advanced, that the prospective core membership of a credible senior executive team with a strong track record in the relevant sector is clear, and that the applicant itself has the resources to be able to move swiftly: to act with the responsiveness, availability and flexibility needed in order to maximise the benefit of the new approach.

In coming months we will be seeking to work with Financial Conduct Authority (FCA) on the new approach. I expect that to include an early judgement at “pre-application” stage where the PRA would take a view on whether the accelerated pathway is appropriate, and what that will mean for how you submit the application and engage with us during our review. And for anyone considering an application later this year that you think matches this description, we would be happy to discuss it with you informally.


From our approach to maintain a thriving ecosystem of insurance branches, to innovative approaches to achieving in the wholesale space the high standards for which the UK is rightly known, the PRA is determined to play its part in fostering a competitive UK insurance industry, which has never been more important to the success of London as a financial centre, to the wider economy, and to the great challenge of our time: investing in and underwriting the transition to net zero. The opportunities for the industry are great: we look forward to helping you seize them.

I would like to thank Andy Batley, Mark Baker, Michael Beattie, Paul Brione, Miranda Hewkin Smith, Lisa Leaman, Nylesh Shah, and Gareth Truran for their assistance in preparing these remarks.