Solvent exit planning: an actuarial perspective

6 May 2025

The PRA continues to strengthen the market by introducing Solvent Exit, which seeks to reduce/minimise disruption likely to arise from exit of regulated insurers. For firms operating in the insurance sector, this regulatory push brings new expectations - and actuaries are at its core.

The PRA expects UK insurers to prepare, as part of their business-as-usual (BAU) activities, for an orderly solvent exit, and if needed, be able to execute the plan. These expectations apply regardless of how unlikely or distant a prospect of Solvent Exit may seem to the insurer. The new rules emphasise the importance of orderly market withdrawals that protect policyholders and maintain financial stability. They will be required for all regulated insurers except firms that are expressly exempted – firms in passive run-off, UK branches of overseas insurers, and Lloyds’ managing agents

Actuaries will play a key role in preparing and implementing a solvent exit

They will contribute to Solvent Exit Analysis (SEA) and eventually Solvent Exit Execution Plan (SEEP). These may include the following:

Operational gap assessment and financial impact assessment: An initial assessment to estimate both the financial and non-financial resources required to execute a solvent exit. These include – capital, reinsurance, liquidity and possible losses (haircuts) on sale of asset, liability or portfolio below the current market value. It may also include the cost of employing specialist services.
Reserve adequacy and liability valuation: Both in-house and appointed actuaries (or where specialist service is utilised) are expected to ensure liabilities are accurately estimated or at least fairly stated, margins or adjustments are reasonable and supported by business experience or evidence. There should also be consideration of stressed scenarios and adverse development to ensure reserves remain sufficient even in pessimistic outcomes.
Solvency requirement: During the solvent exit period, the Solvency Capital Requirement (SCR) and Minimum Capital Requirement (MCR).

Capital assessment

PRA requires that a firm identify and monitor indicators that would inform the start of a solvent exit. One of the most obvious monitored indicators will be the solvency position. While most firms would be carrying out a considerable amount of work around these within the ORSA projections, including reverse stress testing, potential exit-specific stresses (e.g., lapses, expense deterioration) should also be considered.

Additionally, firms should continue monitoring other indicators that might point to an exit scenario and perform stress testing around these indicators.

Exit options and expense projections

The SEA documents will need to include the costs of conducting an exit. Given that there can be multiple ways of exiting, scenarios need to be considered around these, with appropriate modelling carried out to account for relevant costs.

If liabilities are not transferred, companies may enter run-off. This will require modelling:

Long-term administrative expenses.
Claims handling costs.
and discounting impact .

In case of exit through policy portfolio transfers, in addition to the modelling of relevant expenses, actuaries will have a key role to play in:

Evaluation of transferred liabilities.
Assessment of the credit risk of reinsurers.
Ensuring fair treatment of policyholders.

Regulatory and stakeholder communication

The SEA should include the stakeholders that are likely to be impacted by a solvent exit. Actuaries will have a key role to play in designing a communication framework for internal and external stakeholders that may be impacted by a solvent exit. Plans should include details of how and when stakeholders will be updated, before and during the solvent exit process and the level of detail that needs to be communicated.

Solvent exit planning needs to be viewed as more than a regulatory checklist, i.e., as a strategic risk management tool. The PRA’s guidelines reinforce that firms must be ready to leave the market responsibly if needed. Actuaries are critical partners in this process, providing the analytical foundation and risk insights that ensure policyholders remain protected and firms stay in control.