UK insurers have less than two weeks to demonstrate they can exit the market in an orderly, solvent manner before the Prudential Regulation Authority's (PRA) new solvent exit planning regime comes into force.
The framework, set out in Policy Statement PS20/24 and Supervisory Statement SS11/24, takes effect on 30 June 2026. It applies to all UK Solvency II firms, non-directive firms and the Society of Lloyd's, requiring them to maintain a Solvent Exit Analysis (SEA) setting out how they would cease regulated activities while remaining solvent and protecting policyholders.
From 1 July, PRA supervisors can request a firm's SEA at any time.
The requirement stems from concerns about the impact of insurer failures. According to PRA data, the Financial Services Compensation Scheme (FSCS) paid £1.3 billion in compensation to policyholders between 2013 and 2023 arising from insurance failures.
The question now is whether firms are ready.
A compliant SEA is intended to be a practical plan rather than a theoretical exercise.
Adam Berry, financial services regulations partner at Browne Jacobson, said firms must identify the actions required to cease regulated activities while remaining solvent, assess potential barriers to an orderly exit and determine the resources required to execute the plan.
Critically, firms must identify the minimum level of financial resources needed to achieve a successful solvent exit.
"That figure is not simply the Solvency Capital Requirement (SCR) or Minimum Capital Requirement (MCR)," Berry said. "It will differ materially from firm to firm depending on business model."
Yet many firms have underestimated the scale of the exercise.
"The short answer is yes," Berry said when asked whether the industry had miscalculated the effort involved.
One recurring weakness has been the tendency to rely on generic regulatory thresholds rather than developing firm-specific indicators that reflect a company's own risk profile. Another has been a failure to fully assess operational barriers that could complicate an orderly exit.
"This is precisely where firms often surface issues such as potential complications arising from complex corporate or mutual structures," Berry said, "that could significantly impede an orderly exit."
The challenge is particularly acute for smaller firms. According to Deloitte's analysis of PRA consultation data, 97% of the approximately 370 firms in scope were medium or small insurers. Many had little or no prior experience of formal solvent exit planning and have had to develop plans largely from scratch.
Grant Thornton, which has tracked firms' preparations ahead of the deadline, found that smaller insurers drawing on standardised templates to meet the compliance date risk producing plans that will require further refinement to satisfy PRA expectations over time.
In May, the International Underwriting Association (IUA) published guidance for members on preparing their SEA, drawing on practical experience from across the market.
Nafisah Hussain, director of public policy at the International Underwriting Association (IUA) in London, said gathering the necessary information from across the business had proved one of the main challenges.
"The nature of a solvent exit analysis will depend on firms' size, business model, systemic importance and range of products sold," Hussain said. "Companies should draw upon existing information where appropriate and avoid duplicating work for other existing requirements."
The consequences of getting it wrong extend beyond meeting a regulatory deadline.
Berry said solvent exit planning feeds directly into the PRA's assessment of firms and the intensity of supervision they can expect. More seriously, the PRA already has powers under the Financial Services and Markets Act 2000 (FSMA) to vary or cancel a firm's Part 4A permissions.
"Persistent or material failures to engage with solvent exit planning could ultimately inform how those existing powers are exercised," Berry said.
The broader message from practitioners is that firms will get the most value from the exercise when it is treated as a governance tool rather than a compliance requirement.
The PRA deliberately avoided prescribing a standard template, Berry noted, in part to discourage firms from treating the exercise as a box-ticking exercise. Instead, the process is intended to help boards understand the practical realities of exiting the market and identify potential obstacles before they become critical.
Hussain said a well-constructed SEA can help boards better understand the costs and complexities of ceasing operations, supporting decision-making around risk appetite, business strategy and operational resilience.
Chris Harvey, managing director of South Wales Insurance Brokers, said the implications extend beyond insurers themselves.
"Anything that improves insurer resilience, governance and orderly run-off is ultimately relevant to brokers and policyholders," Harvey said. "Our role is not just to find a competitive premium but to place clients with insurers we believe will be there when claims need to be paid."
The best outcome is that the plans are never needed, but Harvey argued that the value of the exercise lies in what the process reveals about an insurer's character.
"Insurers that have thought carefully about how they would exit the market, should the worst happen, are often demonstrating the same governance and risk management qualities that make them stronger partners in the first place."
