Insurance Outlook 2026

Market themes and trends

Amidst a year of fluctuating momentum in M&A generally, 2025 saw a substantial uptick in deal values in the insurance space in the UK, driven by a number of transactions exceeding £1bn. The most notable of the deals announced in 2025 were Brookfield’s acquisition of Just Group and Apollo-backed Athora’s proposed acquisition of Pension Insurance Corporation Group (PIC). There were also highly competitive processes in the European market, such as Cinven’s sale of its interest in German insurance consolidator Viridium, which drew substantial interest from a range of bidders. There continues to be robust market activity, with a number of competitive auction processes ongoing in early 2026.

A lot of insurance M&A activity is currently being driven by private capital. These deals give private capital groups access to large pools of assets held by insurers, and therefore an opportunity to grow their private markets business and their fee income. Insurance companies can gain access to private market investment experience, including asset origination capability, and potentially higher returns which they might find more difficult to develop organically. On the buy-side, throughout the year, a combination of improved visibility on economic policy, rising public markets and ample dry powder created a favourable platform for funds to invest – particularly in the UK and Europe.

As well as M&A, we have seen a rise in strategic partnerships between insurers and private capital groups, such as the deal entered into between Blackstone and Legal & General last July under which Legal & General will invest up to 10% of anticipated annuities new business flows with Blackstone and the partnership announced by AIG and CVC in January this year. We expect 2026 to see a continuation of the convergence between life insurance and private capital, both in terms of M&A and other link ups.

We also expect to see continued activity as corporates in insurance and ancillary sectors divest businesses as part of a wider strategic transformation. We anticipate corporate separation and carve out activity to drive both corporate-to-corporate dealmaking and sponsor-backed activity.

In our Insurance Outlook 2025 we commented on the anticipated strength of the pension derisking market in the UK in 2025. Buy-in transaction levels have remained high at around £40 billion in value and are predicted to meet or exceed that level in 2026. Major transactions in 2025 included Legal & General’s £4.6 billion buy-in with Ford Pension Schemes, which was the largest pension risk transfer transaction announced in the UK and Legal & General’s second-largest buy-in by premium size of all time.

Market developments in 2026 will also continue to be affected more generally by the global political and economic environment. The Bank of England Financial Policy Committee noted in October 2025 that risks associated with geopolitical tensions, global fragmentation of trade and financial markets, and pressures on sovereign debt markets remained elevated and that a crystallisation of such global risks could have a material impact on the UK as an open economy and global financial centre.

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FCA review of the Consumer Duty

The FCA has an ongoing programme, following the introduction of the Consumer Duty in 2023, to streamline and simplify its rules where possible, in particular relying on the Duty instead of more detailed prescriptive requirements. It also made a specific commitment to the Chancellor in September 2025 to address concerns about the application of the Consumer Duty to wholesale firms. Areas of recent, ongoing and planned activity include:

• a recent policy statement on simplifying the insurance rules (PS25/21) – in particular, this clarifies the definition of commercial insurance customers for the purposes of various conduct of business requirements and extends the scope of the exemption for bespoke insurance contracts
• a recent consultation on targeted clarification of Handbook materials to address outdated rules and guidance – CP25/37, published on 9 December 2025
• a recent statement on firms working together to manufacture products and services, published on 8 December 2025 – this aims to clarify the PRA’s expectations where firms are working together in a distribution chain to manufacture a product or service
• a future consultation on changes to the rules and guidance relating to distribution chains, planned for Q2 2026 (and referred to in the statement on firms working together)
• a future consultation on disapplying the Duty in respect of business with non-UK customers, planned for mid-2026.

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Targeted support

Overview

On 11 December 2025 the Government published its consultation response and the FCA published its policy statement in response to their July 2025 consultations on the introduction of a new regulated activity of providing “targeted support”. The new regime is due to take effect from early April 2026.

The introduction of targeted support is a central outcome of the Government and FCA’s advice/guidance boundary review. It recognises that the majority of consumers do not take regulated financial advice about making investments and seeks to provide an alternative way of supporting customers’ decision-making. The FCA also intends to consult in early 2026 on simplifying and consolidating its existing investment advice rules and guidance.

An additional aim of the new regime, as stated in the Government’s Financial Services Growth and Competitiveness Strategy, is to “Address risk aversion to retail investment, to the benefit of our citizens, markets and wider economy”.

Targeted support involves the delivery of ready-made suggestions to clients in situations involving a shared financial support need or objective, by reference to the client’s alignment with a pre-defined consumer segment. The service should not involve the provision of individualised advice.

Key aspects of the new targeted support regime, which we discuss in more detail in our Overview of Targeted Support, are:

• providing targeted support will be a new regulated activity under the FSMA regime and will not constitute “advising on investments”
• appointed representatives will not (for the time being at least) be able to provided targeted support services
• firms will need to define “consumer segments” at an appropriate level of detail so that they allow targeted support to be provided in a suitable manner but do not stray into individualised advice
• subject to certain conditions, firms can recommend an annuity as, or as part of, a ready-made suggestion under targeted support
• a ready-made suggestion must not include a recommendation to consolidate any of the pension arrangements that a client holds (which the FCA considers requires more individualised advice)

The FCA has also published two joint statements accompanying its policy statement – a joint statement with the Financial Ombudsman Service clarifying how the FCA and the FOS will work together in the event of future complaints relating to targeted support and a joint statement with the Information Commissioner’s Office on how firms can communicate with consumers in the context of existing direct marketing rules.

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PRA Insurance sector priorities

The PRA has set out its insurance supervision priorities for 2026 in its recent Dear CEO letter.

Having completed the review of Solvency II and the transposition of the amended regime into its Rulebook as of the beginning of last year, only minor tweaking of its core insurance rules are expected from the PRA in 2026. It has, for example, recently consulted on minor amendments and clarifications to its reporting and disclosure requirements.

The PRA will continue to monitor the ongoing high levels of pension derisking activity in the sector, where it remains concerned that competitive pressures may create incentives for firms to weaken pricing discipline or their risk management standards. It is also considering possible alternative forms of capital which might be appropriate for the life market. We discuss both of these aspects in more detail below.

On the non-life side, the PRA will launch its Dynamic General Insurance Stress Test in May, and other areas of focus include an ongoing monitoring of assumptions being made in firms’ internal models about future underwriting performance.

The PRA is also committed to working on rules for the Government’s proposed new captive insurance regime and consultations from both the PRA and FCA are expected to be published in summer 2026.

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Alternative life capital

On 14 November 2025 the PRA published a discussion paper to gather feedback on facilitating life insurers’ access to alternative forms of capital not stemming from direct issuances of equity or debt. The PRA’s plan to publish a discussion paper had been announced in a September speech by Vicky White which focussed on the use of funded reinsurance in the bulk purchase annuity market. The consultation period is open until 6 February 2026. A feedback statement and possible policy proposals can be expected in H1 2026.

The PRA does not make specific policy proposals in the discussion paper but outlines the potential need for alternative sources of capital, examples of risk transformation used in other sectors and jurisdictions, and potential risks and prudential concerns. It is inviting views on possible structures which might be used. Examples discussed are: ISPVs/Insurance Linked Securities; Synthetic Risk Transfers (currently used in the banking sector); and life insurance sidecars.

The PRA remains concerned that the long-term nature of life insurance liabilities is unsuited to the use of UK ISPVs as risk transfer vehicles, but invites views on whether the regime could be suitably adapted. In the current version of SS2/25 (Prudential considerations for insurance and reinsurance undertakings when transferring risk to Special Purpose Vehicles), the PRA comments that due to the long-term nature of the liabilities, to offer an acceptable or competitive price for the risk transfer of a book of annuities an SPV would likely need to invest in assets with significant credit and market risk. As a result of this and the general lack of diversification of risk in an SPV, the PRA does not expect the use of an SPV to result in a reduction in the overall level of capital a cedant holds for these risks and therefore does not expect firms to use SPVs to transform the risks associated with annuities or similar insurance business.

In the November discussion paper, the PRA notes that, in contrast to the current requirement for an ISPV to hold assets to cover the maximum exposure of the underlying insurance contract, for the ISPV regime to work for life insurance the quantum of assets an SPV is required to hold would likely need to be capped by the contractual agreement between the insurer and the SPV. This is because it is often impossible to determine a maximum exposure for these type of contracts. This would, of course, have implications for the level of the risk transfer from the perspective of the insurer.

The PRA concludes the discussion paper by setting out six principles which it considers should apply to alternative life capital structures:

1. The quality and quantity of capital to support insurance risks should not be lowered
2. The risk transferred should be contractually-bounded and time limited
3. Cedants will need to manage tail and residual risks (given principle 2)
4. Structures should predominantly result in capital relief, not balance sheet financing
5. Structures should not be developed to allow firms to originate and then distribute all risks they underwrite
6. Structures should not alter the control the cedant has over the management of its business

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