The Bank of England, through its supervisory arm Prudential Regulation Authority, outlined plans to tighten capital treatment for funded reinsurance deals.
These structures allow life insurers to transfer risk to offshore reinsurers, often backed by private equity capital.
Under the proposal, UK life insurers would hold around 10% capital against such exposures, up from roughly 2% to 4% today.
The regulator said current rules underestimate risk and create incentives that favour funded reinsurance over similar structures.
Funded reinsurance has expanded quickly. The PRA estimates UK exposure at about £40 bn, with projections reaching £100 bn over the next decade.
According to Beinsure analysts, this growth reflects demand for capital-efficient structures as insurers manage long-term liabilities.
Private equity firms play a larger role in the segment. Groups such as Apollo Global Management, KKR, CVC Capital Partners, and The Carlyle Group have expanded into reinsurance through offshore platforms.
Major UK life insurers including Aviva, Legal & General, and Standard Life rely on these arrangements to manage balance sheets and free up capital.
Gareth Truran said the regulator aims to correct the imbalance before it creates broader systemic risk. Earlier assessments described the current treatment as a regulatory quirk that could shift investment away from UK assets toward offshore structures.
The move reflects wider scrutiny of links between insurers, banks, and private capital.
Regulators in Europe and the United States are also examining how these relationships affect risk transfer and financial stability.
The PRA will consult on the proposal until July 31, with changes expected to apply to new deals from October.
Huw Evans said the regulator has taken a stricter approach than global peers, raising questions about alignment with broader growth policies.
The PRA has gone further than its global peers in regulating funded reinsurance. Insurers may question this departure from the principles-based framework and the wider growth agenda.
Huw Evans, UK head of insurance at KPMG
The outcome will shape how UK insurers use funded reinsurance. Higher capital requirements could reduce reliance on these structures or change how deals are priced and structured going forward.
