The Bank of England's Prudential Regulation Authority has imposed stricter capital requirements on UK life insurers using offshore pension transfers. The PRA will increase capital needed for "funded reinsurance" deals and eliminate what it calls a "regulatory inconsistency" that exposes savers to higher risks in private credit markets.

Funded reinsurance transfers both pension liabilities and backing assets to foreign reinsurers, often in Bermuda. North American private capital groups like Apollo, Brookfield, and Blackstone have expanded into the UK "bulk annuities" business, where companies offload pension liabilities. These deals allow insurers to reduce capital requirements despite potentially increasing risks.

UK life insurers have agreed over £40bn of funded reinsurance deals, with projections reaching £110bn in the next decade. Recent major transactions include Apollo-backed Athora's £5.7bn takeover of Pension Insurance Corporation and Brookfield's £2.4bn acquisition of Just Group. Legal & General completed £3.2bn in such deals in 2023 alone.

The new rules will raise capital requirements from 2-4% to about 10% for insurers using funded reinsurance, making these arrangements far less attractive. The PRA's approach goes beyond global peers, potentially altering the UK insurance market landscape while ensuring greater protection for pensioners and stronger incentives for UK investments.