Fitch Ratings said the UK Prudential Regulation Authority’s (PRA) 2025 Life Insurance Stress Test (LIST 2025) reinforces its view that the sector is well capitalised, but warns that real-world stress scenarios could lead to a different outcome due to higher market interconnectedness than the exercise assumes and associated spillover effects.
On 24 November 2025, the PRA released results for each participating UK insurer, representing 11 of the largest UK life insurers active in the bulk purchase annuity (BPA) market.
Fitch noted that the exercise and the insurer-specific results improve transparency and align insurance supervision more closely with bank oversight in Europe.
“Prolonged credit downgrades and migrations, along with property valuation declines, drove the largest solvency ratio hits. Asset mixes are diversified, but equity release mortgage (ERM) exposures remain a vulnerability for some insurers under severe stress scenarios. Just Group’s (Insurer Financial Strength (IFS) rating: A+/Stable) insurance subsidiaries hold among the highest ERM exposures, although this is mitigated by modest loan-to-value ratios and tight controls. Fitch rates eight UK insurance groups active in the bulk annuity market, all with IFS ratings in the ‘AA’ or ‘A’ categories, and with ‘Extremely Strong’ scores on Fitch’s Prism Global model,” said the ratings agency.
Fitch believes the test does not fully capture the potentially heightened valuation and credit risks of private assets – an exposure that continues to increase among UK life insurers. This may be addressed in future system-wide testing around private credit, given the growing relevance of alternative assets for the financial sector.
The agency added that credit deterioration can be highly correlated across asset classes, meaning that singling out exposures by concentration, as in the stress test, may understate cross-asset transmission and contagion.
Conversely, Fitch noted that the framework allowed only limited management actions to ensure consistency and comparability of results. In a real stress scenario, insurers would deploy a broader range of tools, such as reinsurance, risk transfers, and capital injections.
Individual results varied significantly due to differing balance-sheet structures, business models, and starting solvency positions.
Fitch said, “Insurers that have significant ring-fenced with-profits surpluses, such as The Prudential Assurance Company (AA-/Stable), Phoenix Life Limited (AA-/Stable) and Aviva Life & Pensions UK Limited (AA-/Stable), had dampened results. This is because the regulatory solvency calculation excludes own funds above the solvency capital requirement for these ring-fenced books. However, these surpluses can absorb losses within those ring-fenced funds.
“Insurers with very strong starting solvency positions (above 200%) – Rothesay Life (A+/Stable), Pension Insurance Corporation PLC (A+/Stable), and Legal and General Assurance Society (AA-/Stable) – remained among the highest post-stress ratios, but also had some of the largest declines. This reflects the mechanics of the solvency ratio, where larger starting own funds amplify movements, and their greater exposure to bulk annuities. The stress is most relevant to bulk-annuity writers.”
Fitch also noted that the funded re stress test focused on the largest counterparty and did not capture broader interconnectedness among reinsurers. One failure could trigger another, and collateral pools may be correlated, particularly if the underlying assets are similar. Simultaneous recaptures across correlated portfolios during market stress could amplify risks beyond the test’s scope.
Insurers with lower post-stress ratios appear more vulnerable in a funded re recapture scenario. Applying the industry-wide funded re impact of a 10pp reduction pushes some close to 100%. This suggests that thinner solvency buffers and a greater propensity to use funded re could heighten risks under severe stresses. Fitch believes the findings will inform future PRA policy and initiatives, including recent discussions to develop alternative capital options for life insurers.
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