The PRA states that it is not proposing specific policy changes at this stage and is instead seeking evidence and perspectives from a wide range of stakeholders. The regulator’s overriding aim is to work collaboratively with industry to identify where the existing insurance regulatory framework may need to change to accommodate new capital structures.
The discussion paper invites feedback on where capital constraints currently exist for life insurers, how more flexible models could help, and what features alternative capital should offer for both insurers and investors. It also asks stakeholders to identify the key risks that could arise from enabling greater flexibility in access to capital for life insurance business and how those risks might be mitigated.
Re‑thinking the ISPV framework and capital market channels
A central strand of the paper is the potential use of Insurance Special Purpose Vehicles as a conduit for alternative life capital. The PRA notes that ISPVs are entities through which insurers can transfer insurance risk to the capital markets and is exploring how these vehicles could be used to unlock additional sources of patient, long‑term capital for life insurers. In parallel, the PRA is exploring ways to broaden access to “patient, long-term” capital, including a review of the UK’s ISPV regime as a potential channel for capital to support longevity and related risks.
The regulator is collaborating with HM Treasury on reforms to the ISPV framework, as outlined in Policy Statement PS9/25 and HM Treasury’s consultation on the Risk Transformation Regulations, with the aim of enabling third‑party capital investment in the UK insurance sector. The discussion paper presents this ISPV work as part of a broader toolkit that could complement longevity reinsurance and potentially cover specific components of asset risk.
Alternative capital structures and risk transfer design
DP2/25 explores how alternative life capital funding structures could be designed to transfer specific tranches of risk from life insurers to external investors. The PRA notes that, with appropriate investor partners, such structures could allow insurers to make longer‑term investments for better returns, diversify and share longevity or credit risk, structure bulk annuity deals with external capital, and open up new product innovation.
The paper seeks views on potential approaches for valuing the risk transfer associated with these alternative funding structures. This includes how to assess the extent of risk transfer where capital markets investors take on defined slices of longevity, credit or other life insurance risks via ISPVs or similar vehicles. This encompasses questions around tenor, subordination, triggers, collateralisation and alignment with insurers’ long‑term liability profiles, although the paper does not prescribe specific structures at this stage. The PRA asks for views on how it should balance the ease of authorisation against the intensity of ongoing supervision for alternative life capital funding structures.
This framing indicates that the regulator is considering trade‑offs between streamlined entry for new capital vehicles and the supervisory resources and tools required to monitor complex risk transfer structures over time.
Stakeholders are invited to comment on how supervisory expectations should evolve for life insurers that make use of ISPVs or other alternative capital channels, including governance, risk management and valuation of transferred risks. However, the paper reiterates that any eventual adjustments to the regime would be subject to full consultation and, if implemented, applied prospectively.
Market context: constraints on traditional capital
The PRA notes that feedback from market participants suggests traditional sources of capital, such as listed equity and debt, are becoming less accessible or less attractive for some firms. This is described as particularly relevant for public listed insurers and mutuals, which can face constraints in raising new capital. The regulator also points to the potential for alternative capital to support longer‑term investment strategies and diversification of longevity or credit risk, especially in areas such as bulk annuities and other long‑dated liabilities.
The PRA’s stated objective is to facilitate and attract new forms of capital that can support UK economic growth while maintaining strong protection for policyholders, rather than to replace existing capital instruments. The consultation therefore focuses on how alternative structures could complement, rather than displace, traditional equity and debt issuance.
Engagement process and next steps
The PRA indicated in September 2025 that it planned to publish a discussion paper on alternative life capital options later in the year, and DP2/25 now delivers that commitment. To inform potential changes to capital structures, the PRA will convene industry roundtables in autumn 2025, with any adjustments subject to consultation and, if implemented, applied prospectively.
The consultation period for DP2/25 closes on 6 February 2026, after which the PRA will review feedback from insurers, investors and other stakeholders on the feasibility, risks and design of an alternative life capital regime.
