What is next for the insurance sector: Life insurance in an age of deglobalisation

The institutional scaffolding of globalisation - multilateral trade bodies, rules on investment, and frameworks for cross-border capital flows - is becoming less effective and increasingly politicised. The world is entering a new, deglobalised age to which insurers must adapt.

Global to local

Geopolitical instability and conflict, coupled with weakened global institutions and eroding democratic norms, have increased uncertainty and reduced appetite for complex international operations. Tariffs and sanctions have made cross-border activity more costly, and although the pain will be most acute for general insurers, the life market is not immune from the knock-on impacts on investment returns, consumer behaviour and demand.

Regulators have also tightened oversight of international capital and risk transfer. The Bank of England’s Supervisory Statement SS5/24 limits the extent to which UK insurers can rely on reinsurance in jurisdictions with weaker prudential standards. The European Insurance and Occupational Pensions Authority (EIOPA) has issued expectations for third-country reinsurance that strengthen due diligence and reduce arbitrage opportunities. In the United States, the National Association of Insurance Commissioners (NAIC) has been considering measures to scrutinise offshore structures.

Recent market activity highlights investor preference for strong regulatory environments and predictable long-term returns. Some of the latest high-profile transactions reflect sustained international investment in the UK life insurance sector. While these deals do demonstrate ongoing global capital flows, they also underscore the appeal of direct acquisition amid constraints on accessing UK annuity assets through funded reinsurance.

Implications for life insurers: consolidation and localisation

This reordering of the global economy is already reshaping how insurers deploy capital, transfer risk, and structure their businesses. This will undoubtedly continue, driven by several key dynamics:

• As supervisory frameworks diverge and global tensions persist, life insurers concentrate on a smaller number of strategically important markets to manage regulatory and geopolitical risk.
• Cross-border reinsurance and retrocession structures may decline in popularity as regulators limit arbitrage opportunities between onshore and offshore entities. The emphasis will shift toward genuine risk transfer within robust domestic regulatory environments.
• Investment patterns are also likely to evolve. Governments are encouraging insurers to deploy capital locally, through initiatives such as the Mansion House reforms and the Matching Adjustment Investment Accelerator (MAIA). This will channel funding into infrastructure and private assets, increasing domestic concentration risk.

Adapting to the new normal

To remain competitive in this evolving environment, there are three strategic priorities life insurers need to consider:

1. Regulatory change
   Life insurers will need to navigate increasing regulatory divergence and shifting expectations on transparency, liquidity and capital transfer. For example, the PRA’s recent Discussion Paper DP2/25 signals regulatory willingness to explore innovative capital solutions, provided they align with prudential standards and support long-term investment in the UK economy. Proactive and transparent communication with supervisors on evolving business models and capital strategies will be essential.
2. Risk and capital management
   Firms should reassess their capital frameworks to reflect a more localised risk landscape. This includes enhancing capital flexibility and fungibility across legal entities, reviewing internal reinsurance and funding arrangements, and ensuring robust diversification and liquidity under new stress scenarios. Capital optimisation will increasingly depend on efficiency within home and priority markets rather than global arbitrage and funded reinsurance arrangements may need to be reassessed against evolving supervisory expectations. This shift will require close collaboration between risk, actuarial and finance teams. Firms that act early to adapt their capital strategies will be better placed to demonstrate resilience and maintain regulatory confidence.
3. Strategic and operational transformation
   Operating models must adapt to a more localised environment. Rationalising cross-border entities and embedding consistent governance frameworks will improve operational robustness. At the same time, rethinking offshored operations, through onshoring, nearshoring, or leveraging AI, can enhance control, agility and resilience. Investment strategies may also need to be rebalanced towards assets that meet domestic solvency criteria. Unpicking years of optimisation around global diversification will be challenging, however it also presents an opportunity to simplify, modernise and refocus on core markets.

Resilience through localisation

The trend toward deglobalisation is unlikely to reverse in the near term, with governments and companies increasingly prioritising security and resilience over efficiency. Life insurers will face higher costs of capital, reduced diversification opportunities and greater operational complexity. Yet localisation also offers the potential for stronger resilience and more transparent supervisory relationships. Firms that move early to align capital, governance and investment strategies with domestic priorities will be in the strongest position to unlock new avenues for growth such as faster approval for innovative asset strategies and quicker access to domestic investment opportunities.

The challenge for firms will be to retain the efficiencies of scale and diversification that global structures once provided while operating within increasingly national frameworks. This might be through internal reinsurance, utilising partnerships and joint ventures as a source of diversification in place of traditional cross-border reinsurance, or alternative forms of capital as discussed in DP2/25. Those that achieve this balance, with disciplined capital allocation, credible risk transfer, and streamlined operations, will be best positioned to thrive in a more fragmented, but potentially more stable, global insurance landscape.