UK Insurance Newsletter - October 2026

From July to September 2026, principal UK insurance regulatory developments included the Financial Conduct Authority (FCA) multifirm review on frontier AI and cyber resilience, the proposed removal of the two-stage complaints process for Lloyd’s, the FCA postimplementation review of the value measures rules, Lloyd’s new Credit Risk underwriting framework, Lloyd’s updated version of “Performance Management – Supplemental Requirements & Guidance,” and the FCA review of outcomes monitoring.

In the EU, we consider the European Insurance and Occupational Pensions Authority (EIOPA) technical advice on minimum common standards for insurance guarantee schemes across the EU, as well as EIOPA’s publication of its Solvency II Review Guidelines and draft Technical Standards. 

UK Updates

1. FCA multi-firm review on frontier AI and cyber resilience

The FCA published the findings of its multifirm review into how firms are using, testing, and preparing for frontier AI models, and the implications of those models for cybersecurity and operational resilience. The review follows the joint statement made by the FCA, the Bank of England and HM Treasury in May, in which frontier AI was described as a step-change in capability with serious implications for firms.

The FCA defines “frontier AI” as “the most advanced AI models available at any given time,” noting that such models’ capabilities can outpace existing regulations and risk management practices.

In the review, firms reported that frontier AI models have acted as a “stress test” of firms’ existing cybersecurity infrastructure. The models have exposed existing weaknesses in firms’ vulnerability management practices, access management controls, dependency mapping, and remediation processes. Accordingly, the FCA found that firms with strong foundational cyber-resilience systems, with clear accountability and effective oversight, are likely to be better positioned for the new challenges posed by frontier AI.

Firms also reported that the value obtained from frontier AI depends less on the model used than on the operating environment in which the AI models are deployed (the “harness”). The review found that models are most effective when supported by specialist tooling, validation processes, operational controls and limitations, and human expertise.

The FCA hopes firms will use the review’s findings to consider how they integrate frontier AI into their practices and prepare for AI-enabled cyber threats.

2. Proposed removal of the two-stage complaints process for Lloyd’s

In its Quarterly Consultation published in September, the FCA proposed changing the Lloyd’s customer complaints handling procedure from a two-stage to a single-stage process.

The current complaints process is as follows:

• A managing agent carries out a review of the relevant complaint and provides a response within two weeks.
• If agreement has not been reached following the managing agent’s review, a customer may escalate their complaint to Lloyd’s for an independent review, with Lloyd’s providing a final response to the customer within eight weeks.

Under the proposals, managing agents will be solely responsible for handling complaints. Lloyd’s will not have direct contact with complainants; however, it will retain a residual power to intervene in specific complaints where it considers this necessary.

For the change to be implemented, the FCA would need to amend its guidance in DISP 1.11.8G.

The consultation closed on 12 October.

3. Consultation on minor General Insurance (GI) value measures changes and post-implementation review of the value measures rules (CP26/33)

The FCA published a post-implementation review of its GI value measures rules and a consultation paper proposing two minor amendments to those rules.

The rules were first introduced in 2021 and require firms to report and publish certain value measures data. The FCA intended the publication of this data to reduce poor product value for consumers in the GI market.

The review found that the rules have improved transparency and helped firms meet fair value requirements. The primary issue raised by firms in the review was that the rules are not sufficiently clear to enable consistent reporting across firms and products, making the resulting data harder to use and compare.

The FCA plans to hold a wider consultation on the GI value measures rules next year. Ahead of this, it has proposed two minor “standalone changes” to the rules to reduce the reporting burden on firms. It proposes:

• Removing the requirement for firms to report the threshold above which the top 2% of claim payouts fall; and
• Removing the requirement for firms to report the five largest distribution arrangements.

Under the proposals, the changes would be optional for the 2026 and 2027 reporting years, becoming mandatory for the 2028 reporting year.
The consultation closed on 9 October 2026.

4. GI vertically integrated business models: managing conflicts of interest

The FCA published a statement setting out its expectations for GI firms operating vertically integrated or closely connected business models.

Vertically integrated business models may bring together underwriting, distribution, and intermediary activities, premium finance, and other ancillary services, or involve ownership, investment, or financing arrangements that create close commercial links between insurers, intermediaries, and related service providers.

The FCA expects firms to identify, prevent, or appropriately manage conflicts and has asked firms operating these types of arrangements to review their business models, governance arrangements, systems and controls, and conflict-management frameworks.

Please see the corresponding Sidley briefing note for further information.

5. Market Bulletin: Lloyd’s new Credit Risk underwriting framework

In response to increased credit-related underwriting activity, Lloyd’s released a market bulletin setting out its work to develop a framework to enhance oversight of credit-related underwriting. Lloyd’s aims to implement the framework during the first half of 2027.

The bulletin sets out three workstreams:

• Portfolio Segmentation, which involves developing new Credit Risk codes and a new Credit Risk return (with the aim of tracking trends in, among other things, top obligors, jurisdictions, and types of credit risk);
• Capability Assessment, which involves developing a questionnaire and categorisations to understand and monitor a syndicate’s ability to write the class; and
• Market and syndicate risk appetite, which aims to replace gross written premium–based risk appetite with a quantitative view of tail risk through new Realistic Disaster Scenarios.

6. Updated version of “Performance Management – Supplemental Requirements & Guidance”

In August, Lloyd’s published an updated version of its “Performance Management – Supplemental Requirements & Guidance” document, which sets out requirements and guidance on performance management in the Lloyd’s market.

The most substantial change is the deletion of the Credit and Financial Guarantee section. This section now redirects to Market Bulletin Y5487, which outlines Lloyd’s recently introduced framework for enhancing credit risk oversight (see above).

The remaining amendments aim to clarify and streamline certain sections of the guidance. Notable changes include:

• The addition of factors that Lloyd’s will consider when assessing a managing agent’s proposal to use a higher-leverage reinsurance structure;
• The removal of the UK GAAP balance sheet quantitative trigger (this now redirects to the Lloyd’s Capital Guidance); and
• The addition of a definition of a related party for reporting purposes.

7. PRA and FCA propose new captive insurance regime

The Prudential Regulation Authority (PRA) and FCA published parallel consultations proposing a tailored UK regime for captive insurers.

Although UK captives are already possible, the absence of a proportionate framework has led many UK groups to establish captives offshore. The proposals are intended to make the UK a more competitive captive domicile.

The consultations closed on 14 October 2026, with implementation expected in mid-2027.

Please see the corresponding Sidley briefing note for further information.

8. Outcomes monitoring: good practice and areas for improvement

The FCA published the findings of its review into firms’ approaches to monitoring consumer outcomes. The report highlighted that monitoring consumer outcomes to ensure customers receive good outcomes in practice is a key part of firms meeting their consumer protection obligations under the Consumer Duty. The review identified three areas for improvement across the market: (i) strategy and frameworks; (ii) data, management information, and testing; and (iii) governance, oversight, and culture.

On strategy and frameworks, the review found that some firms lacked clear structures to identify and analyse poor customer outcomes. In particular, their internal frameworks did not clearly define what constituted a poor outcome, and their definitions of “good” and “poor” outcomes were not linked to different stages of a customer’s experience with the firm. They also provided limited evidence of how outcomes may change across different customer segments.

On data, management information and testing, the FCA found that some firms collected data but could not demonstrate how it was used to anticipate issues, or to track outcomes and the effects of changes made in response to data indicating poor outcomes.

On governance, oversight and culture, the review found that practices varied across the market. Many firms were able to describe clear governance structures, but the FCA noted that it was less clear how these operated in reality. The same applied to governance arrangements between firms and third parties. Furthermore, the review found that while boards reviewed reports on customer outcomes, they rarely challenged them or pushed for further action. Similarly, where issues were identified, firms were unable to explain why certain actions were taken and whether they were effective.

The FCA did not indicate whether it would take further steps following the review. It recommended that firms use the findings from the review to consider the efficacy of their own approaches to outcomes monitoring.

EU Updates

9. EIOPA publishes its technical advice on minimum common standards for insurance guarantee schemes (IGS) across the EU

In September, EIOPA announced that it had submitted technical advice to the European Commission on minimum common standards for IGS. The technical advice responds to the Commission’s Call for Advice in relation to IGS. 

EIOPA noted that national IGS vary in their scope and coverage, meaning policyholders in different Member States can receive significantly different outcomes when insurers fail. It therefore supports harmonising IGS across Member States.

EIOPA’s advice recommends harmonising specific areas of IGS in a targeted and proportionate manner whilst leaving space for national specificities where necessary. EIOPA considers this consistent with its broader objectives of regulatory simplification and burden reduction.

Regarding the scope of policies to be covered by national IGS, EIOPA recommends harmonising the life and non-life products that would cause policyholders the greatest financial hardship in the event of insurer failure. 

EIOPA also recommends harmonising the triggers that activate IGS across Member States, to simplify frameworks, improve predictability, and promote equal treatment of policyholders across Member States.  

Finally, on funding arrangements, EIOPA proposes setting minimum funding requirements to establish liquidity safeguards whilst leaving Member States the flexibility to determine the form and scale of funding.

10. Final Solvency II Review Guidelines and draft Technical Standards

In July, EIOPA published its final set of Guidelines and draft Technical Standards as part of the Solvency II Review. 

Under the Review, EIOPA was mandated to develop Guidelines on supervisory powers to address deficiencies in undertakings’ liquidity management. As a result, EIOPA published new Guidelines on liquidity vulnerabilities. EIOPA also revised four existing sets of Guidelines, to maintain consistency with the updated legal framework. 

Additionally, EIOPA published draft Regulatory Technical Standards on the simplified calculation of the risk margin and revised two sets of Implementing Technical Standards relating to the matching adjustment and supervisory disclosure templates. On 8 October 2026, the European Commission adopted the Regulatory Technical Standards on the simplified calculation of the risk margin (C(2026) 7016 final), which will apply from 30 January 2027. Adoption of the two revised Implementing Technical Standards has not yet been confirmed.

The Guidelines and, if approved, the Technical Standards will come into force on 30 January 2027.

If you would like to discuss how these changes may affect your business, please contact your regular Sidley contact.