The regulatory environment
Regulation aims to protect policyholders and support financial stability. It affects how insurers are authorised, how their business is managed, how they communicate with customers, and how supervisors respond when things go wrong.
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Regulatory objectives
Policyholders of insurance policies are exposed to the risk that the insurer is unable to meet their obligations or that the benefit delivered is ultimately not what they had been led to expect.
Due to the uncertainty of an insurer's liabilities, it is often very difficult for policyholders to monitor the health of their insurer and make reasonably informed judgements about the level of risk to which they are exposed.
Regulation has been introduced in most countries with the primary aim of protecting policyholders of insurance products. This is particularly important since policyholders comprise mostly unconnected individuals, who may not have the same level of collective power as other stakeholders.
Most jurisdictions in the world will have an insurance regulator in place to develop new regulations, monitor insurers’ compliance with the regulations, and (where appropriate) take actions to protect policyholders.
The objectives of individual regulators will usually be set out in law but, at a high level, these will often be focused on policyholder protection and financial stability.
Possible examples of objectives for a life insurance regulator include the following:
Promoting the safety and soundness of the companies that it supervises.
Securing an appropriate degree of protection for consumers.
Ensuring appropriate customer outcomes.
Promoting effective competition in the interest of consumers.
Protecting and enhancing the integrity of the financial system.
Promoting the development of the insurance industry in that country.
Even where the objectives of regulators in different jurisdictions are apparently quite similar, the actual approach taken to achieve those objectives can differ significantly (due to, for example, differences in legal frameworks, differences in environment, or differences in historical context). Regulators will often have a range of powers available to them to ensure that their supervisory objectives are met, but these powers (and the point at which a regulator can exercise them) can vary significantly between jurisdictions.
Changes in objectives for a regulator may be driven by factors such as:
changes in the economic environment (e.g. in a low interest environment regulation, such as making employer pension contributions mandatory, may be put in place to help consumers with their funding of retirement income).
a desire to increase harmonisation across jurisdictions.
advances in risk management.
Since life insurance is a global business, insurers must comply with more than just local regulation. Regulators may also work closely with supranational regulators and other groups to help set standards for the regulation of life insurance across the world. An insurer that operates across national boundaries (e.g. via branches or subsidiaries) will need to comply with regulations in each of the territories within which it operates. Regulations in each country are likely to reflect the relative markets and thus be different.
In addition to specific insurance regulation, there is likely to be additional legislation which also impacts life insurers (e.g. consumer protection legislation, equality and climate change, etc).
Regulatory responsibilities
For a life insurer to meet their obligations to policyholders, a number of (often complex and interrelated) processes within the business need to work together successfully.
In many jurisdictions, regulation will often cover almost every aspect of a life insurer's business. Life insurance regulators will often produce rulebooks or handbooks which set out how life insurers must operate. Regulators may also issue other occasional publications, such as supervisory statements or guidance notes. These are not necessarily regulations, but regulators would expect firms to behave in a manner that is consistent with their content.
The types of responsibilities that life insurance regulators may have include the following:
Authorisation - The requirements and processes to be followed for obtaining permission to write certain classes of business.
Business standards - The requirements that will affect companies in their day-to-day business (particularly market conduct) and preventing unfair trade practices.
Supervisory reporting - The requirements and timescales for reporting of financial and other information to the regulator.
Monitoring - The requirements for the regulator to regularly assess companies via monitoring visits or supervisory reviews.
Valuation and capital requirements - The requirements for the calculation of technical provisions or mathematical reserves, derivation of assumptions, and capital requirement calculations (including minimum levels and levels at which regulatory intervention should be expected).
Fit and proper persons - The requirements and rules by which individuals who hold specific positions are vetted to ensure that they satisfy appropriate 'fit-and-proper' criteria.
Action taken by regulators - The actions a regulator may take when they deem an insurer to be not acting in an appropriate way.
Transfer of surplus - The requirements governing the transfer of surplus within a long-term business fund to the shareholders' fund.
Transfer of liabilities between insurers - The requirements governing how companies can transfer blocks of business and liabilities between insurance companies.
Authorisation
Life insurers will normally be required to obtain permission from the relevant regulator in order to carry out a regulated activity in a particular jurisdiction.
Information on the requirements and processes that must be followed for obtaining such permission will be set out in the relevant rulebook for that jurisdiction.
Regulations may set out the authorisation that is required to write certain classes of business (e.g. life and annuity business, linked long-term business, etc) and separate applications may be needed for each. Insurers will normally not be allowed to undertake insurance of a particular class without specific authorisation to do so.
In the UK, long-term insurance business is a regulated activity and such products are divided into the following main classes:
Life and annuity.
Marriage and birth.
Linked long-term.
Permanent health.
Tontines.
Capital redemption.
Pension fund management.
Collective insurance.
Social insurance.
In some jurisdictions, the regulator may require that a new product is pre-approved in advance of being sold to customers. In other jurisdictions, whilst pre-approval of a new product may not be specifically required, the regulator may expect insurers to discuss any new products with them if they are particularly risky for the consumer or introduce new risks to the insurer.
It is possible that where a country is part of a wider economic bloc, authorisation in one State to sell life insurance would allow the insurer to sell life insurance in other countries within that bloc. For example, the EU passporting framework allows an authorised insurer to conduct cross-border business, subject to notification procedures, home-state prudential supervision and relevant host-state rules.
Business standards
Life insurers will often be required to comply with detailed regulations regarding the operation of their business which may cover the following:
Senior management responsibilities, systems and controls
Such regulations are likely to outline the requirements regarding running of the company, including in the following areas:
Compliance.
Risk management.
Systems and controls.
Outsourcing.
Appointment of fit-and-proper persons and their responsibilities (including statutory actuarial roles).
Regular meetings with senior management at the firm.
Regulatory processes (which would describe the operation of the regulator's supervisory and disciplinary functions).
Market conduct and treating customers fairly
These rules often require that firms act honestly, fairly, and professionally in accordance with the best interests of their clients. In the UK, the applicable conduct rules depend on the product and activity, including the Conduct of Business Sourcebook (COBS) and Insurance Conduct of Business Sourcebook (ICOBS).
Many regulators now include the concept of treating customers fairly within their rulebooks, although interpretations of what constitutes 'fairly' may differ significantly between jurisdictions.
For UK retail business within its scope, the Consumer Duty requires firms to deliver good customer outcomes. It covers product design and distribution, fair value, consumer understanding and customer support. Firms need to assess the outcomes customers actually receive throughout the product’s life. FCA explanation
Communication with clients
These rules often require that all communications to customers are clear, fair, and not misleading.
Specific rules are often included stipulating how past performance may be used in financial promotions.
Issues that such rules may aim to address include the following:
Use of past performance as an indicator of future returns.
Excessive small print in financial promotions.
Use of selective time-periods to make past performance appear particularly attractive.
Financial promotions which foster unrealistic expectations and may lead consumers to invest in inappropriately high-risk funds.
Separate treatment is often given to cold calls and other promotions that are not in writing. There are also often rules covering 'distance marketing' communications (e.g. internet and email).
Information about the company, its services, and remuneration
These rules often require disclosure of certain information to customers when contact is first made. Regulation may require that prospective policyholders receive an 'initial disclosure' document which includes information on the nature of the firm and its services, and how it is remunerated for them. In some jurisdictions, such initial disclosure documents will need to make clear whether the firm offers the products of a single provider, a limited number of providers, or a range of providers. The document may also invite customers to request a list of the providers on which advice is offered.
This would also include details on the method by which commissions (or equivalent) are calculated. In some jurisdictions, commission is prohibited for particular services; for example, UK retail investment advice is subject to adviser-charging requirements.
Product information
There may be requirements for customers to be sent (at or before the point of sale) a document setting out the key features of the contract being proposed. These key features may have to be customer specific (rather than simply figures relating to a hypothetical average policy).
The document may also need to include a table showing the effect of expenses and charges.
The format of this table will vary by regulator, but may need to include details of the following:
Total premiums payable.
Total charges.
The impact of any deductions.
This table may also show the totals above at different intervals throughout the policy (e.g. every five years) and show the figures under different investment return assumptions. Some jurisdictions may fix the rates of investment return that should be used. The impact of administrative charges (excluding the cost of sickness or death benefits) could be shown as a reduction in yield. These projections may carry warnings that they are for illustrative purposes only, so as to reduce the risk of creating policyholder expectations.
Redress
This would cover the rules for dealing with complaints from, and paying compensation to, customers.
Other
These sections may include rules on the following:
Assessing the suitability of products for clients.
Record-keeping.
The execution of deals.
The right to cancel.
Claims handling.
The provision of regular and transaction-related information to the customer.
Permitted links for unit-linked business (i.e. the assets/indices in which unit-funds may invest).
The operation of with-profits business
Regulation may also cover the way insurers exercise discretion in with-profits business, including how they take account of policyholders’ interests.
Supervisory reporting
It is common for insurers to be required to provide detailed regular reporting to the regulator.
The regulator will normally set out these requirements, including the form and frequency of the reporting required. Standardised templates may be used for this (though additional management information reports may also be required).
The information required will vary between regulators, but is likely to include some or all of the following:
Details of the balance sheet, including the value of assets, liabilities, and capital requirements.
Details of a revenue account and the basis of its preparation (e.g. local GAAP or IFRS).
The components of capital requirements and details of the assumptions/models used in their calculation.
Details of the valuation methodology for assets and liabilities (including details of the models and assumptions used).
Details of new business written over the year.
For with-profits business, details of the values of bonuses, assets, and liabilities.
A forward-looking analysis showing business plan projections for a period (often at least three years), including key assumptions.
Possible stress and scenario testing on the business plan.
The timing of the submission of items required by the regulator is likely to be spread over the year. For example, as part of year-end reporting, items such as balance sheet, revenue accounts, and new business are likely to be submitted once the results are signed off by relevant internal governance. Items such as business plans and stress/scenario testing are likely to be submitted at other times.
Monitoring
Regulators will often look to regularly monitor the ongoing operation of life insurers to ensure that they are being managed in an appropriate way.
This monitoring may include the following:
Regular assessment visits - where regulators attend offices of the firm to look at specific aspects of the company's operations.
Review of any reports that the company has discussed at its relevant governance meetings (e.g. Board, Audit Committee, Risk Committee, etc).
Supervisory review of regulatory reports submitted by insurers (where the degree of scrutiny given may depend on the inherent risk of the company).
Valuation and capital requirements
Due to the potential for uncertainty in the valuation of assets and liabilities, regulators will normally set out rules or principles that should be followed in valuations and in determining capital requirements.
In general terms, these rules/principles are likely to cover the following areas:
Valuation of assets - including what value to use (e.g. market or book value), how to deal with unlisted assets and any models used in their valuation, and any restrictions on assets that can be included (e.g. admissibility limits).
Valuation of liabilities - including the types of business included and how to include any discretionary increases or options/guarantees.
Assumptions used - including how to derive discount rates (e.g. best estimate, risk-free, or prudent), derivation of demographic assumptions, whether persistency assumptions are included, and how to value options/guarantees.
Reinsurance - including how to allow for reinsurance and, in particular, the risk of reinsurer default.
Calculation of capital requirements - including the calculation method/principles, the minimum levels required, and the levels at which supervisory intervention should be expected. This may also include details of maintaining capital requirements within specific funds (e.g. long-term business fund or shareholder fund).
Fit and proper persons
Regulators will want the management and Board of an insurer to manage the company in a professional and prudent manner. Regulators may, therefore, want to ensure that individuals who hold specified senior positions in regulated firms are vetted to ensure that they satisfy appropriate 'fit-and-proper' criteria.
Regulatory rulebooks are likely to set out the rules by which individuals who carry out senior roles within an insurer will be assessed. This could take the form of an appropriate amount of relevant industry experience at a senior level, background checks, and possibly an interview with the regulator's staff.
In deciding whether a person is fit and proper, a company should look at a person’s:
personal characteristics (e.g. integrity).
level of competence and experience.
qualifications and training.
Regulations may also set out the corresponding requirements for insurers to assess the ongoing fitness of such individuals and the circumstances under which regulatory approval may be withdrawn.
Actions taken by regulators
Regulators will often have a range of powers available to them to meet their supervisory objectives.
Where a life insurer is acting in a way that the regulator deems inappropriate, possible powers could include the following:
Requiring the insurer to remedy the situation.
Public censure.
Fines.
Requirement to purchase reinsurance.
Requirement to hold additional capital.
Revoking the insurer's permission to carry out regulated activities.
Revoking the ability of certain managers to hold senior positions at a life insurer.
Requiring the insurer to pursue a merger or acquisition.
Refusal to approve a transfer of liabilities between insurers.
Criminal prosecutions.
If an insurer's financial position is serious, the regulator may require them to close to new business. In less serious cases, the insurer may be required to establish a recovery plan (which the regulator may monitor closely).
In some jurisdictions, regulators may legally be only able to exercise their powers under specific circumstances (e.g. when an insurer's solvency falls below a specific level). In other jurisdictions, regulators may have more discretion about the point at which it can take action and the extent of that action. Where a regulator has the discretion to get involved, they must carefully consider the circumstances of each case before deciding an appropriate course of action. In particular, the regulator's actions should be proportionate to the nature, scale, and complexity of the risks inherent in an insurer's business.
Possible factors that the regulator should consider before taking action may include:
the proximity of failure of the insurer.
the level of confidence that the insurer will act on the instructions of the regulator.
the potential impact on policyholders and the stability of the financial system.
Treatment of groups
Some insurers are of such large size, market importance, and global interconnectedness that their distress or failure would cause severe adverse consequences across the global financial system. As such, they may be subject to additional regulatory scrutiny.
In 2013 the International Association of Insurance Supervisors (IAIS) announced its intended approach to the identification of 'global systemically important insurers' (G-SIIs). Shortly afterwards, the Financial Stability Board (FSB) published an initial list of nine such G-SIIs. This list was updated on an annual basis. G-SIIs were subject to enhanced supervision, including requirement to have systemic risk management plans, enhanced liquidity plans, and effective separation of non-traditional or non-insurance business. The FSB decided in December 2022 to discontinue the annual identification of G-SIIs. IAIS announcement.
Under this approach, the FSB bases its considerations of systemic risk in the insurance sector on the IAIS Holistic Framework for the assessment and mitigation of systemic risk in the insurance sector.
This framework includes the following:
A set of supervisory policy measures designed to increase the overall resilience of the insurance sector (with related powers of intervention).
Assessment of whether the supervisory measures have been implemented consistently throughout the insurance industry.
Monitoring of global insurance market trends and developments to detect the possible build up of systemic risk in the insurance sector.
Statutory actuarial roles
In many jurisdictions, there is a statutory requirement for a life insurance company to appoint actuaries into certain roles of responsibility.
Titles applied to such roles can depend on a number of factors, such as local regulations, the responsibilities of the role, and the circumstances of the firm (e.g. whether it is a Solvency II or non-Solvency II firm). For example, Solvency II requires an effective actuarial function. The title and appointment requirements for its holder depend on national rules; “Chief Actuary” is the UK designation. Solvency II actuarial function. Other possible titles for statutory actuarial roles include Actuarial Function Holder, Appropriate Actuary, or Appointed Actuary.
The detail of any statutory actuarial roles and their responsibilities in a particular jurisdiction will be set out in the relevant regulatory rulebooks.
These roles are likely to be covered by any 'fit and proper persons' regulations. The holders of such roles are usually not allowed to fulfil any other roles within a firm that would cause a conflict of interest (or, if they do, the firm is required to declare these to the regulator).
The exact nature of such roles may vary by jurisdiction, but examples of the types of responsibility allocated to a Chief Actuary could include the following:
Ensuring the adequacy of technical provisions.
Ensuring the appropriateness of the methodology and assumptions used to calculate the technical provisions.
Assessing the sufficiency and adequacy of the data used to set the methodology and assumptions used.
Expressing an opinion on the adequacy of reinsurance arrangements.
In some jurisdictions (e.g. the UK), a company that transacts with-profits business may have a statutory requirement to have a With-Profits Actuary in addition to either a Chief Actuary, Actuarial Function Holder, or Appointed Actuary. When a With-Profits Actuary is appointed, they usually cannot be a member of the Board of Directors. Restrictions on other actuarial roles depend on the applicable rules and potential conflicts of interest. Subject to certain conditions, the Chief Actuary and With-Profits actuary can sometimes be the same person.
Examples of the responsibilities of the With-Profits Actuary include the following:
Advising management on key aspects of the discretion exercised affecting with-profits business.
Producing a report to the firm's governing body at least once a year covering the advice given to management. This should include the aspects of the Principles and Practices of Financial Management (PPFM) on which the advice given was based.
Advising management on whether the assumptions used to calculate future discretionary benefits within the technical provisions are consistent with the PPFM.
Producing publicly available annual reports for policyholders. This report must confirm whether or not, in the opinion of the With-Profits Actuary, the firm has properly taken policyholders' interests into account in exercising its discretion and whether it has treated customers fairly.
In respect of the Chief Actuary and With-Profits Actuary roles, a life insurer is often required to do the following:
Keep the actuary informed of the firm's business plans and to seek advice from the actuary of the implications of these plans for policyholders.
Pay due regard to the advice of the actuary.
Provide the actuary with adequate resources and provide such data and systems as may be reasonably required.
Transfer of surplus
In many jurisdictions, regulation will set out how much of its funds a company may legally transfer out of the business (e.g. via shareholder dividend payments, or distributions from a subsidiary to a parent company).
These regulations may allow any amount disclosed as surplus in its supervisory valuation to be transferred out of an insurer’s long-term insurance fund. Alternatively, they may specify that a certain level of capital requirement must be covered by surplus within the long-term insurance fund (and hence restrict any transfer).
In some jurisdictions, the regulator may also wish to consider the quality of the capital remaining within the insurer's long-term fund following a distribution or dividend payment. For example, whilst a company may appear to have adequate capital on paper, if that capital is particularly illiquid then it may not act as a suitable buffer to protect the insurer in adverse circumstances. More generally, the regulator will expect insurers to have sufficient liquidity to pay claims following the payment of any surplus distribution.
There may also be restrictions on transfers arising from with-profits business. For proprietary with-profits business, surplus must be divided in some way between shareholders and policyholders (e.g. 90% to policyholders, 10% to shareholders) and the proportions used will generally remain unchanged year on year. Changing these proportions will generally be subject to certain rules.
The transfer of liabilities between insurance companies
Companies may sometimes transfer liabilities between one insurer and another (e.g. as a result of takeovers and mergers, due to internal reorganisation of company structures within larger groups, etc).
In the UK, such transfers of long-term liabilities between insurers are commonly called 'Part VII transfers' (after the relevant part of legislation). Transfers of business can be complex and costly, so they are not undertaken lightly.
Examples of circumstances under which liabilities may be transferred between insurers include the following:
When a mutual company demutualises - the usual process here is to set up a new proprietary company into which the business of the mutual is then transferred.
When a closed company or fund is purchased by a consolidator.
Requirements of transfers
Regulators will require certain processes to be followed to ensure that the interests and benefits of policyholders are protected.
Policyholder groups whose interests should be considered include:
those being transferred.
those remaining with the company (if applicable).
those existing policyholders in the receiving company.
Regulation may prohibit the transfer of any business out of a particular jurisdiction. Where it is not prohibited, there may be requirements to obtain approval (or non-objection) from other interested regulators in other jurisdictions.
Requirements in the UK
In the UK, the process will normally require approval from the Court and will also require a report on the scheme of transfer from an independent expert appointed by the firm (who must also be approved by the regulator).
For a transfer of long-term business, the independent expert should be an actuary familiar with the role of the Chief Actuary (and of the With-Profits Actuary if the transfer involves with-profits business). The role of the independent expert is to assist the Court and give the Court evidence on the proposed transfer.
The independent expert’s report would primarily assess the likely impact of the transfer on:
- The transferring policyholders.
- The remaining policyholders, if only part of the transferring company’s business is being transferred.
- The existing policyholders of the receiving company.
The key areas of consideration by the independent expert for the above three main groups of policyholder will include the following:
Policyholder benefits and benefit expectations.
Security of policyholder benefits.
Wider issues relating to treating customers fairly.
It is possible that the Court will require certain things to be done prior to approval being granted. For example:
The scheme must be adequately publicised in the press.
All policyholders involved should be communicated with. This would generally involve sending policyholders (and, if relevant, shareholders) a statement setting out the terms of the scheme and containing a summary of the independent expert's report that is sufficient to indicate their opinion on the effect of the transfer on the interests of the policyholders involved.
The company to which the business is being transferred must be authorised to take on that type of business and, after the transfer, must be able to cover its regulatory capital requirements.
Any concerns from stakeholders (e.g. policyholders, employees, regulators, etc) should be heard if they feel that the transfer would adversely affect them. The regulators are not formally required to approve a scheme in the UK, but they may make representations to the Court (which the Court considers when deciding whether to sanction the scheme) if they had concerns relating to treating customers fairly.
The Court decides whether to sanction the scheme, considering its fairness and the effects on policyholders; agreement between the transferring and receiving companies is not sufficient by itself.
Requirements in the US
In the USA, insurance business can be transferred from one entity to another within a jurisdiction. Note, however, that insurance regulation in the US is done at State level (and thus may vary between States).
Examples of the two main ways in which insurance business can be transferred from one entity to another include the following:
Indemnity reinsurance. This is the most common approach and involves one insurer reinsuring its liabilities to another insurer. The original issuer of the policy remains liable to the policyholder. Most States have laws in place which require regulatory approval where an insurer wishes to transfer all or substantially all of its liabilities to another insurer. A notice to policyholders is generally not required for this approach. Policyholder consent is generally not required because the original insurer remains liable, though the applicable state rules must be considered.
Assumption reinsurance. This involves transferring the actual policies from one insurer to another. This generally requires the approval of policyholders in the US which can be a long and difficult process (and, in some States, may require the approval of each individual policyholder).
Other legislation, regulation, and guidance
In addition to any specific life insurance regulation, the operation of insurers may be impacted by other legislation and professional guidance.
Professional guidance
APS L1: duties and responsibilities of life assurance actuaries
In the UK, the Institute and Faculty of Actuaries (IFoA) sets professional requirements for members undertaking specified life insurance actuarial roles and for members advising them. APS L1 addresses the duties and responsibilities of life assurance actuaries; the applicable version sets out its scope and role-specific requirements. IFoA professional standards
Communicating concerns to the regulator
Actuaries in statutory roles may have duties to communicate concerns to regulators. Matters that may need to be reported include contraventions of legislation, risks to the insurer’s ability to meet liabilities, failures to take policyholder interests into account, and inadequacies in the insurer’s relationship with its actuary.
The IFoA’s former APS L2 addressed this area. It was withdrawn on 23 January 2026, but that did not remove obligations under legislation or FCA and PRA requirements. IFoA notice
APS X1: applying standards to actuarial work
APS X1 applies to IFoA members working both inside and outside of the UK. It sets out the principles by which members should determine which standards they should apply to a piece of work.
APS X2: review of actuarial work
This applies to all IFoA members and relates to the need to consider the extent to which review (including independent peer review) is required for any actuarial work.
Expert evidence in legal proceedings
Actuaries appointed as expert witnesses in courts or tribunals need to consider the professional requirements and procedural rules applying to that work.
Other guidance
There may be guidance issued by other professional actuarial bodies that apply to specific jurisdictions.
This should be followed alongside any IFoA guidance in accordance with APS X1.
Climate change
Policymakers and financial regulators are assessing the impact that climate change could have on the financial systems and also the role that the financial system can play in achieving an orderly transition to the new environmental landscape (i.e. a low-carbon economy).
In order to limit the impact of climate change on the financial system, many regulators are working on regulation whose aims include ensuring that financial institutions do the following:
Consider climate risks in business decision making and strategic planning.
Effectively disclose and report on climate-related risks and opportunities.
Adopt a consistent and reliable means of assessing, pricing, and managing climate related risks.
Incorporate ESG factors into investment management decisions.
Incorporate financial risks from climate change into existing risk management processes.
Use scenario analysis to inform risk identification and estimate the impact of financial risks arising from climate change.
Consider the impact of climate risks on the ability to meet obligations to policyholders and other key stakeholders.
Some regulators have issued guidance on the topic of insurers' approaches to understanding and managing the financial risks from climate change. For example, in the UK, climate change was included as a scenario in the PRA's Insurance Stress Test (2019). In this exploratory exercise, the PRA proposed climate change scenarios involving both physical and transition risks (including shocks to asset values varying by sector). Firms were invited to share the assumptions and parameters derived internally when assessing the likely impacts of climate change.
Other legislation
Consumer protection, equality, and data protection legislation should also be considered.
Regulatory approach by jurisdiction
United Kingdom
Life insurance companies in the UK are regulated by the following two regulatory bodies:
The Prudential Regulation Authority (PRA) - The regulatory body concerned with solvency and capital requirements. This is part of the Bank of England and is responsible for the prudential regulation of all deposit-taking institutions, insurance providers, and large investment firms. The PRA's role includes securing an appropriate degree of policyholder protection and promote resilience against failure. Their role is not, however, to ensure that no insurer fails.
The Financial Conduct Authority (FCA) - The body concerned with ensuring that customers are treated fairly (amongst other things). This body is responsible for regulation of conduct in financial markets (and the infrastructure that supports those markets) and the prudential regulation of financial services companies that do not fall under the scope of the PRA (e.g. insurance brokers and smaller investment firms). The FCA acts as a conduct regulator for firms prudentially regulated by the PRA. The FCA is concerned with the lifecycle of financial products, right from the start of the design stage. They have the power to ban products where necessary.
Both the FCA and PRA contribute to securing an appropriate degree of policyholder protection through their separate objectives and both have a statutory duty to co-ordinate their activities including policymaking and supervision. In some cases, the two authorities have a direct interest in the same issues but from different perspectives. For example, the PRA will want to understand the risks to insurers' capital and profitability if compensation is due as redress for conduct matters, but will not need to be as close to the details of the remedial action as the FCA.
Both authorities adopt a forward-looking approach, seeking to prevent problems occurring, rather than only taking action after the event.
The PRA and FCA both apply a principles-based approach to the regulation of life insurers in the UK. The following are examples of the principles that a life insurer must comply with in the UK:
A firm must conduct its business with integrity.
A firm must conduct its business with due skill, care, and diligence.
A firm must act in a prudent manner.
A firm must observe proper standards of market conduct.
A firm must at all times maintain adequate financial resources.
A firm must have effective risk strategies and risk management systems.
A firm must organise and control its affairs responsibly and effectively.
A firm must pay due regard to the interests of its customers and treat them fairly.
A firm must pay due regard to the information needs of its clients and communicate information to them in a way which is clear, fair, and not misleading.
A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client.
A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgement.
A firm must arrange adequate protection for clients' assets when it is responsible for them.
A firm must prepare for resolution to ensure that, if the need arises, it can be resolved in an orderly manner with minimum disruption to critical services. Resolution involves statutory measures to manage the failure of an insurer where the relevant legal conditions are met.
A firm must deal with its regulators in an open and co-operative way and must disclose to the regulator appropriately anything relating to the firm of which the regulator would reasonably expect notice.
The PRA and FCA assess the risk that a particular firm, activity, or issue poses to their objectives and concentrate their supervisory efforts on high-risk areas (i.e. firms which pose the greatest risk - perhaps due to their large size or lack of capital - will be subject to the greatest regulatory scrutiny).
The PRA co-operates with other insurance supervisors and participates in international groups such as the International Association of Insurance Supervisors (IAIS).
The UK left the EU on 31 January 2020, and the transition period ended on 31 December 2020. The UK retained a framework derived from Solvency II and subsequently introduced reforms known as Solvency UK. The main package was implemented by 31 December 2024, including changes to the risk margin, matching adjustment, internal model permissions and reporting. These are implemented reforms, rather than proposals awaiting implementation. PRA account of implementation
The important distinction is between a shared starting framework and the rules that now apply in each jurisdiction. A UK insurer should not automatically apply an EU parameter, reporting requirement or permission condition.
United States
In the US, each State has its own insurance regulator which supervises insurers domiciled in that State. The work of individual state regulators is co-ordinated through the National Association of Insurance Commissioners (NAIC). The NAIC provides guidance on the standards which apply in each State. The NAIC does not have any power to enforce changes, but sets out model laws for regulation which has supported significant uniformity of reporting, valuation, and capital requirements across each State.
There are also two federal entities involved in insurance regulation in the US:
The Federal Insurance Office - This body exists within the US department of Treasury and monitors all aspects of the insurance sector and advises on important international and national matters, but does not have a supervisory role.
The Federal Reserve Board - This body supervises certain insurance groups, including insurance organisations that own banks, within its statutory remit.
The US regulatory, legal, and tax framework has generally led to a preference for the use of prescriptive rules and regulations combined with overall asset adequacy analysis, with relatively recent inclusion of certain principles-based requirements.
China
The insurance industry in China only reopened in the 1980s and has experienced significantly higher growth than most Western countries since then. Prior to the 1980s, the CCP ran all insurance operations in mainland China under the People's Insurance Company of China (PICC).
China’s National Financial Regulatory Administration was established in May 2023, taking over responsibilities from the China Banking and Insurance Regulatory Commission (CBIRC). Its remit includes supervision of banking and insurance institutions and enforcement against regulatory violations. Chinese government announcement
China’s Risk-Oriented Solvency System (C-ROSS) introduced significant changes to capital requirements, risk management and disclosure. It has similarities to Solvency II, while reflecting the circumstances of the Chinese insurance market.
Australia
Australia has a large developed financial services market.
The Australian Prudential Regulation Authority (APRA), established on 1 July 1998, is the prudential regulator of the Australian financial services industry. The APRA oversees a range of financial institutions including banks, building societies, general insurers, reinsurers, life insurers, private health insurers, and most of the group pensions industry. APRA is largely funded by the industries that it supervises. APRA’s prudential role is to promote the soundness of regulated institutions and protect the interests of depositors, policyholders and other beneficiaries, while considering efficiency, competition and financial stability.
APRA takes a risk-based approach to supervision that is designed to identify and assess those areas of greatest risk to a regulated entity (or the financial system as a whole). It then applies its supervisory resources, paying attention to these risks in a targeted and cost-effective manner. Limitations were identified with regards to the extent that Australia's regulatory regime allowed for risk-based capital, risk management, and disclosure requirements. APRA therefore developed the Life and General Insurance Capital (LAGIC) standards. LAGIC has strong parallels to Solvency II and follows a similar three-pillar structure. It was implemented on 1 January 2013.
South Africa
South Africa has a large developed financial services market.
Up to 1 April 2018, the Financial Services Board (FSB) was an independent body responsible for regulating the (non-banking) financial services industry in South Africa.
Following the global financial crisis, the FSB launched a project to establish a risk-based solvency framework for the prudential regulation of life and non-life insurers in South Africa. This framework was referred to as the Solvency Assessment and Management (SAM) framework. It was implemented on 1 July 2018. In addition to changes in the solvency framework, the SAM reforms were part of a comprehensive overhaul of the existing financial sector legislation in South Africa. These broader reforms arose from the shift to a 'twin peaks' model of financial regulation in South Africa which saw the establishment of a prudential regulator in the South African Reserve bank and a conduct regulator.
From 1 April 2018, the FSB was split into two new regulators (similar to split in the UK):
The Prudential Authority (PA) is responsible for regulating a wide range of financial institutions, including banks, insurers, financial conglomerates, and financial market infrastructure. Its functions include licensing, ongoing supervision, and enforcement.
The Financial Sector Conduct Authority (FSCA) is responsible for market conduct regulation and supervision. Its aims include the following:
Enhancing the efficiency and integrity of financial markets.
Promoting fair customer treatment by financial institutions.
Providing financial education and promoting financial literacy.
Assisting in maintaining financial stability.