Fitch Ratings said the UK Prudential Regulation Authority’s (PRA) Life Insurance Stress Test 2025 (LIST 2025) has strengthened its view on the sector’s capital adequacy, but warned that real-world stress scenarios could lead to different outcomes due to higher market correlations than the test assumptions and associated spillovers.
The PRA’s LIST 2025, published on 17 November 2025, shows the ability of the UK’s major life insurers to respond to severe but possible financial market stress scenarios.
On 24 November 2025, the PRA published the results for each participating UK insurance company, representing the 11 largest UK life insurance companies active in the bulk purchase annuity (BPA) market.
Fitch noted that the exercise and specific outcomes for insurers increase transparency and align insurance regulation more closely with banking regulation in Europe.
“Prolonged credit downgrades and migrations, along with falling property valuations, have seen the biggest hit to solvency ratios. Asset portfolios are diversified, but equity release mortgage (ERM) risk remains a vulnerability for some insurers in severe stress scenarios. Just Group’s (Insurer Financial Strength (IFS) Rating: A+/Stable) insurance subsidiary has the highest ERM risk, although this risk is mitigated by modest loan-to-value ratios and tight controls. Fitch rates eight UK insurance groups active in financial markets. The IFS ratings for the batch annuity market are all in the ‘AA’ or ‘A’ category, and the Fitch Prism Global model has an ‘Extremely Strong’ rating,” the ratings agency said.
Fitch believes the test does not fully reflect the potential overvaluation and credit risk of private assets – an exposure that continues to increase for UK life insurers. Given the growing relevance of alternative assets to the financial sector, this issue may be addressed in future system-wide tests around private credit.
The agency added that credit deterioration can be highly correlated across different asset classes, meaning cherry-picking exposures by concentration in stress tests could underestimate cross-asset transmission and contagion.
Instead, Fitch noted, the framework only allows for limited management actions to ensure consistency and comparability of results. In real stress situations, insurers will deploy a wider range of tools such as reinsurance, risk transfer and recapitalization.
Individual results vary widely due to differences in balance sheet structures, business models and starting solvency positions.
Fitch said, “The performance of insurers with large profit surpluses, such as Prudential Insurance Company (AA-/Stable), Phoenix Life Limited (AA-/Stable) and Aviva Life & Pensions UK Limited (AA-/Stable), has been affected. This is because regulatory solvency calculations do not include own funds above the solvency capital requirements of these ring books. However, these surpluses can absorb losses within these ring funds.
“Insurers with very strong starting solvency positions (above 200%) – Rothesay Life (A+/Stable), Pension Insurance Company PLC (A+/Stable) and Legal and General Assurance Society (AA-/Stable) – Still has one of the highest ratios post-stress, but has seen some of the biggest declines. This reflects the mechanics of solvency ratios where larger starting own funds amplify volatility and their greater exposure to large annuity writers.”
Fitch also noted that funded restress tests focused on the largest counterparties and did not capture the broader interconnectedness among reinsurers. One failure may trigger another failure, and collateral pools may be correlated, especially if the underlying assets are similar. Simultaneous withdrawal of underlying portfolios during periods of market stress may amplify risks beyond the scope of the test.
Insurers with lower post-stress ratios appear to be more vulnerable if funds are recaptured. Applying the impact of 10 percentage points of industry-wide funded emission reductions can push some proportions closer to 100%. This suggests that weaker solvency buffers and a greater propensity to use facilities to refinance may increase risks under severe stress. Fitch believes these findings will inform future PRA policies and initiatives, including recent discussions to develop alternative capital options for life insurers.