Insurance Newsletter (January 2026)

This edition of our Insurance Newsletter provides an overview of the principal regulatory updates introduced from September to December 2025.

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

1. Refinements to Solvency II – Third-Country Insurance Branches
2. Solvency II Reporting and Disclosure: Post-Implementation Amendments
3. UK Berne Financial Services Agreement Guidelines
4. Enhancing Banks’ and Insurers’ Approaches to Managing Climate-Related Risks
5. Alternative Life Capital: Supporting Innovation in the Life Insurance Sector
6. FCA Simplifies Complaints Reporting Process
7. FCA and PRA Announce Plans to Support Growth of Mutuals Sector
8. FCA Simplification of the Insurance Rules
9. FCA Confirms Final Guidance to Tackle Serious Non-Financial Misconduct in Financial Services
10. Reform of Anti-Money-Laundering and Counter-Terrorism Financing Supervision
11. Lloyd’s Market Bulletin: Update to the Agency Circumstances Procedure
12. EIOPA Issues Guidance on Group Supervision
    
    

1. Refinements to Solvency II – Third-Country Insurance Branches

PRA Proposal of Further Refinements to Solvency II Regarding Third-Country Insurance Branches (CP20/25)

Following Brexit, the UK Government has worked with the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) to implement Solvency II into the UK’s financial services regulatory framework. Implementation of the amended regime (Solvency UK) was largely completed in December 2024, although the PRA and FCA continue to implement amendments as necessary.

From September to December 2025, the PRA consulted on proposed changes to the treatment of third-country insurance branches.

The primary change proposed is the increase of the subsidiarisation threshold from from £500 million to £600 million in liabilities covered by the Financial Services Compensation Scheme. The PRA believes that inflation has artificially caused some branches to reach the liability threshold and therefore unnecessarily become UK subsidiaries.

In addition, third-country branches are required to notify the PRA in the event they anticipate reaching the subsidiarisation threshold within three years.

The PRA also confirmed a series of minor PRA Rulebook amendments, namely:

• Removal of volatility adjustment eligibility for branches;
• Absorption of two modifications by consent into the PRA Rulebook;
• Reinstatement of reporting templates IR.19.01.01 (non-life-insurance claims) and IR.20.01.01 (development of the distribution of the claims incurred) for category 3 and 4 branches and discontinuation of quarterly reporting for these branches.

The changes to the subsidiarisation threshold will take effect upon publication of the relevant policy statement (expected in the first half of 2026). The other changes noted will take effect on December 31, 2026.

2. Solvency II Reporting and Disclosure: Post-Implementation Amendments

PRA Consultation on UK Solvency II Reporting and Disclosure: Post-Implementation Amendments (CP22/25)

As part of the continued review of Solvency UK, the PRA has opened consultation on amendments to the reporting and disclosure requirements under the regime.

Key Proposals:

•  Introduction of a requirement for third-country branches to report total projected Financial Services Compensation Scheme liabilities data to enhance risk visibility;
• Introduction of new and amended templates for non-life income/expenditure/business-line reporting;
• Clarification on paired asset, derivatives, and dividends reporting and removal of certain quarterly items considered non-essential;
• Transfer of the reporting format of the Matching Adjustment Asset and Liability Information Return templates to XBRL (presently formatted in Excel);
• Removal of duplicate reporting; and
• Simplification of reporting where proportional reinsurance data is unavailable at a sub-class level.

Consultation closes on March 4, 2026. The implementation date of any resulting changes is anticipated to be on or after December 31, 2026.

3. UK Berne Financial Services Agreement Guidelines

PRA/FCA Guidelines on the UK Berne Financial Services Agreement (BFSA)

In November 2025, the PRA and FCA jointly published guidelines for providing services under the BFSA.

UK Insurance Firms

Eligible UK insurance firms must notify the Swiss Financial Market Supervisory Authority (FINMA) with specified information and be placed on the FINMA register before providing services.

To be eligible, UK insurance firms (insurers and intermediaries) must:

• Be incorporated or formed under UK law, a UK resident, or a UK branch of a Covered Swiss Financial Services Supplier;
• Be authorized or supervised as a UK insurer or insurance intermediary; and
• Supply covered services for non-Swiss risks.

To be eligible, UK insurers must:

• Be subject to Solvency II (excluding UK branches of Covered Swiss Financial Services Suppliers);
• Meet the solvency requirements without capital relief measures;
• Fulfil company-specific management buffer requirements;
• Have no life insurance liabilities exceeding 10% of the total best estimate liabilities under Solvency II (without capital relief measures); and
• Ensure staff are knowledgeable of relevant Swiss legislation.

Clients to whom a UK insurer may provide services must be incorporated in Switzerland and meet at least two of the following requirements:

1.  Net turnover in excess of CHF 40 million
2.  Balance sheet total in excess of CHF 20 million
3.  In excess of 250 employees

4. Enhancing Banks’ and Insurers’ Approaches to Managing Climate-Related Risks

PRA Policy Statement: Enhancing Banks’ and Insurers’ Approaches to Managing Climate-Related Risks (PS25/25)

On December 3, 2025, the PRA published its final policy on banks’ and insurers’ (Firms) management of climate-related risks, following consultation in April 2025.

The final policy builds on the PRA’s 2019 expectations for Firms’ management of climate-related risks, providing greater clarity and aligning the expectations with international standards.

Key changes to the final policy (from the draft proposals):

• Further guidance on how Firms should apply expectations proportionately, reflecting their exposure to material climate-related risks and the scale and complexity of their business.
• Clarification that the six-month review period proposed is not an implementation timeline but rather a period during which Firms would be expected to conduct an internal review of their current status in meeting the final policy expectations.
• Firms may integrate climate-related risks into existing risk registers/governance frameworks rather than establishing new ones if risk identification remains robust.
• Confirmation of the PRA’s view that existing Solvency Capital Rules “provide sufficient flexibility for an insurer to take account of climate-related risks in a way that it considers appropriate.” Although, insurers may also exercise discretion in making appropriate adjustments for internal models and market prices of climate-related risks.

The policy took effect upon publication.

5. Alternative Life Capital: Supporting Innovation in the Life Insurance Sector

PRA Discussion Paper on Alternative Life Capital: Supporting Innovation in the Life Insurance Sector (DP2/25)

The PRA is seeking feedback on potential policy changes that could enable life insurers to transfer defined tranches of risk to the capital markets. At this stage, no specific policy changes are proposed. Rather, the PRA is gathering stakeholder feedback on how to facilitate life insurers’ access to alternative forms of capital that do not derive from equity or debt issuance, with particular focus on identifying regulatory barriers to capital entering the sector. Feedback is sought by February 6, 2026.

The PRA indicates that it is open to a broad range of innovative structures structures — including  potential reforms to the Insurance Special Purpose Vehicle (ISPV) framework and adaptation of mechanisms used in other markets, such as banking.

Nevertheless, the PRA has highlighted a non-exhaustive set of risk transformation examples (below) and is seeking views on their feasibility/attractiveness and associated risks: i) ISPVs; ii) significant risk transfers (SRTs); and iii) life insurance sidecars and joint ventures.

ISPVs 

The PRA acknowledges that the current UK regime is targeted towards non-life and short-term risks, which may present challenges when considering its application to longer-term insurance liabilities.

SRTs

The PRA invites views on the potential adaptation of SRTs (well established in the banking sector) for use by life insurers, noting uncertainty over long-term outcomes and the degree/effectiveness of risk transfer may vary over time depending on asset performance.

Life Insurance Sidecars and Joint Ventures

The PRA notes that some alternative structures (including strategic partnerships and joint ventures) are more prevalent internationally and have been developing in the UK, and it invites views on the potential use of life insurance sidecars.

The Discussion Paper also sets out six overarching principles intended to guide the PRA’s consideration of alternative life capital.

6.  FCA Simplifies Complaints Reporting Process

FCA Simplifies Complaints Reporting Process (PS25/19)

The FCA has confirmed plans to streamline the way firms report complaints. Five existing complaints returns will be replaced by a single consolidated return. The first reporting period under the new process will run from January 1, 2026 to June 30, 2027.

Insurance sector impact:

• All firms will now report their complaints data on a fixed six-month and calendar-year basis. This replaces the use of each firm’s Accounting Reference Date.
• Complaints reporting will be based on firms’ permissions; firms will only need to complete the sections of the new return relevant to their regulated activities.
• Group reporting has been removed such that firms must now submit complaints data at the individual legal entity level.
• The FCA are imposing a threshold of 500 complaints or more for insurers (and banks), above which it will publish the relevant firm’s data.
• Clarification has been provided on the scope of product categories, insurance complaint issues, and the parameters of insurance permissions for the purposes of insurance consolidated complaints returns.

7. FCA and PRA Announce Plans to Support Growth of Mutuals Sector

Regulators Announce Plans to Support Growth of Mutuals Sector (Mutuals Landscape Report)

In December 2025, the PRA and FCA jointly published the Mutuals Landscape Report (the Report) and announced a series of measures designed to support the growth of the mutuals sector.

The Report focusses on the mutuals sector as a whole, noting the UK Government’s commitment to doubling its size and sets out plans for credit unions, building societies, and mutual insurers.

The Report notes challenges specifically for mutual insurers, including the following:

• Smaller insurers face issues of economies of scale and business model sustainability, augmented in recent years by rising operational costs;
• Insurance mutuals face difficulties in capital raising when looking to invest and grow.
• There are legislative barriers to capital management.

The new targeted initiatives to support mutual insurers include the following: 

• The establishment of a new FCA Mutual Societies Development Unit
  This will act as a central hub to help mutuals (including insurers) navigate policy and regulatory change by offering expertise on legislation and regulatory processes.
•  Reduced barriers to entry
  The FCA is to provide free preapplication support for firms wishing to form/convert to mutual societies.
  The application processing window for new societies is also to be reduced from 15 to 10 working days, intended to incentivise more society registrations.
• The launch of a joint PRA and FCA Scale-up Unit to provide regulatory support to eligible firms, including mutuals that are looking to grow rapidly.
  

8. FCA Simplification of the Insurance Rules

FCA Policy Statement: Simplifying the Insurance Rules (PS25/21)

The FCA has confirmed various measures that simplify regulations for firms across the insurance and funeral plans sectors and announced further changes affecting insurance firms in 2026 to support growth and innovation.

Key final rules:

• Firms now have the option to appoint a single lead manufacturer responsible for all Product Intervention and Product Governance Sourcebook 4 (insurance product governance) obligations.
• Removal of the requirement for insurance product manufacturers to review insurance products at least every 12 months; firms must now determine the appropriate review frequency based on risk and potential customer harm.
• Removal of the 15-hour minimum training and competence requirement for insurance employees; firms are now permitted to tailor training and competence arrangements to business needs.
• Removal of the existing notification and annual reporting requirements regarding employers’ liability insurance, although firms must continue to notify the FCA of significant rule breaches.
• The FCA has clarified its expectations of firms working together to manufacture products or services under the Consumer Duty. Firms are not required have a say in each other’s decisions, nor is joint decision making or even allocation of responsibilities required.

Key proposed changes:

• Consulting on changes to the client categorisation rules, in line with the Consumer Duty.
• Consultation on disapplying the Consumer Duty to non-UK business by the end of Q2 2026.
• Review of core FCA Handbook definitions to promote “consistency and clarity.”

9. FCA Confirms Final Guidance to Tackle Serious Non-Financial Misconduct in Financial Services

FCA Confirms Final Guidance to Tackle Serious Non-Financial Misconduct in Financial Services (PS25/23)

In July 2025, the FCA updated its rules to more broadly capture non-financial misconduct (NFM) across banks and non-banks (including insurers) that are subject to the Code of Conduct (COCON) and the Fit and Proper test (FIT). In December 2025, the FCA finalised its regulatory framework on NFM and provided further guidance on how to determine when there has been a breach and how to proceed thereafter.

The FCA has introduced a new COCON rule that extends NFM to include “unwanted conduct that has the purpose or effect of violating a colleague’s dignity or creating an intimidating, hostile, degrading, humiliating, or offensive environment for them.”

Not all poor behaviour satisfies the regulatory threshold. But serious NFM is considered a conduct breach and requires declaration to the FCA. It may result in enforcement action against firms and/or FIT consequences for individuals.

The rules do not require employers to monitor employee’s private lives; external conduct will be relevant only where there is risk of future regulatory breach(es) or the conduct is serious enough to erode public confidence.

The guidance will come into effect on September 1, 2026 and will not have retrospective effect.

Please see the corresponding Sidley briefing note for further information.

10. Reform of Anti-Money-Laundering and Counter-Terrorism Financing Supervision

HM Treasury Consultation Response: Reform of the Anti-Money-Laundering and Counter-Terrorism Financing Supervision Regime

In 2022, HM Treasury undertook review of the UK’s anti-money-laundering and counter-terrorism financing (AML/CTF) supervisory system. The review concluded that weaknesses in supervision may require structural reform. In summer 2023, HM Treasury then consulted on reform of the supervisory regime. As part of its consultation, HM Treasury requested feedback on four possible models for reform. In October 2025, HM Treasury published its response to this consultation.

At present, the supervisory system comprises three supervisors: the FCA; His Majesty’s Revenue & Customs (HMRC); and 22 private sector professional body supervisors (PBSs).

The UK Government has decided to proceed with model 3, the creation of a single professional services supervisory (SPSS). Under this model, the FCA will be granted responsibility for all AML/CTF supervision for the legal and accountancy sectors and trust and company service providers. As SPSS, the FCA will carry out these functions independently of HM Treasury and will in practice replace PBSs and HMRC in AML/CTF supervision.

The UK Government has confirmed that efforts are underway to introduce the necessary primary legislation and establish a transition plan but has not committed itself to a strict timetable. 

A separate consultation on SPSS specific powers closed in December 2025, with a response anticipated in early 2026.

Following the 2022 review, HM Treasury has also proposed reform of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 and related legislation via the draft Money Laundering and Terrorist Financing (Amendment and Miscellaneous Provisions) Regulations 2025 (the SI). The instrument is focussed on targeting amendments to close regulatory loopholes, address proportionality concerns; and account for evolving risks in relation to AML/CTF. For example, the SI provides clarity on the scope of “unusually complex or unusually large” transactions for the purposes of enhanced due diligence — confirming  that this measure is relative to what is standard for the sector/nature of the transaction.

The final statutory instrument is expected to be laid out in early 2026.

11. Lloyd’s Market Bulletin: Update to the Agency Circumstances Procedure

Lloyd’s Market Bulletin: Update to the Agency Circumstances Procedure (Ref: Y5474)

Introduced in 2000, Part A of the Agency Agreements (Amendment No.20) Byelaw amended the standard managing agent’s agreement and provided that no transaction, arrangement, relationship, act or event which would or might otherwise be regarded as constituting or giving rise to a contravention of a managing agent’s fiduciary obligations shall be regarded as constituting a contravention if it occurs in circumstances, and in line with requirements, specified by the Council (the Agency Circumstances Procedure).

In December 2025, Lloyd’s confirmed amendments to the ballot requirement of the Agency Circumstances Procedure.

Previously, when a certain proportion of syndicate members objected to a specified proposal by the syndicate’s managing agent, it was required that a ballot be held of unaligned members (seeking approval of the proposal, usually following efforts by the managing agent to address concerns).

December 2025 changes:

• The ballot, if required, must be undertaken by unaligned syndicate members who are not Related Persons (as defined in Lloyd’s Market Bulletin, Agency Circumstances Procedure, Ref: Y3439, 2004).
• The managing agent must offer a postal option for voting.
• The managing agent has discretion to offer the option to vote by email or other electronic means so long as the integrity of the voting process is maintained

12. EIOPA Issues Guidance on Group Supervision

European Insurance and Occupational Pensions Authority (EIOPA) Final Report on Guidelines on Exclusion of Undertakings From the Scope of Group Supervision

EIOPA has published guidelines on exclusions from group supervision, specifying the conditions under which group supervisors may exclude undertakings from group supervision. The Guidelines will become applicable on January 30, 2027.

Exclusions are only permissible in “exceptional circumstances” and must be duly justified to EIOPA and, where applicable, to the other supervisory authorities concerned.

Guideline 1: Supervisors should not exclude if the entity (i) has material intragroup transactions, (ii) has significant influence/coordination over group insurers, or (iii) is needed to understand group risk.

Guideline 2: Supervisors should only consider exclusion based on legal impediments to information exchange between authorities where (i) the undertaking is located in a third country with no equivalence decision; (ii) the undertaking is not party to the International Association of Insurance Supervisors Multilateral Memorandum of Understanding; and (iii) the entity is small relative to the group and its risks are already captured and managed at sole level. Before excluding, supervisors should first consider signing a memorandum of understanding with the third-country supervisor.

Guideline 3: Where exclusion would lead to non-application of group supervision for an undertaking under Article 214(2) point (B) or (C), exclusion should occur only if the entity is small relative to the group, their risks are already captured and managed at individual entity level, and (if a parent undertaking) the risks arise almost entirely from the group.

Guideline 4: Ultimate parents should only be excluded if the parent is not in any of the circumstances set out in Guideline 1; all group risks arising from all other undertakings and intra-group transactions that could affect the undertakings are fully captured at the intermediate level; and the supervisor has adequate information on parent-level group transactions.

Guideline 5: Exclusions must be reassessed and monitored — including ongoing review of intra-group transactions — to ensure conditions remain met.