There is unlikely to be any let-up in regulatory activity affecting defined benefit (DB) pension schemes in 2026, following what has already been a “huge amount” of regulatory intervention in 2025, according to Hymans Robertson’s Risk Transfer Regulatory Review.

The review found that the past year was marked by heightened scrutiny from the Prudential Regulation Authority (PRA), with a particular focus on the growing importance of bulk annuity insurers to pension schemes and the wider financial system.

Central to this was the PRA’s 2025 Life Insurance Stress Tests (LIST), the first conducted under the Solvency UK regime and specifically targeted at the largest bulk annuity providers, covering more than 90 per cent of UK bulk annuity liabilities, which revealed a "reassuring picture of resilience" across bulk annuity insurers.

Individual results published by the PRA also showed that all insurers active in the bulk annuity market remained well capitalised following the stress.

Hymans Robertson stressed that DB schemes considering buy-in or buy-out transactions should pay close attention to the scale of regulatory activity affecting the bulk annuity market, as it has direct implications for insurer pricing, capacity and security.

In particular, the firm highlighted that around £12.3bn of funded reinsurance contracts, representing approximately 50 per cent of exposures, were recaptured under the funded reinsurance stress scenario.

It is estimated that total funded reinsurance exposure across insurers subject to the stress testing is around six per cent, rising to nine per cent when considering only those insurers with funded reinsurance arrangements.

The PRA has previously indicated concerns that some insurers may have relatively concentrated exposures to single reinsurers and is considering changes to the capital treatment of funded reinsurance, which could increase capital requirements and limit usage, with potential consequences for insurer competitiveness.

The review also noted regulatory attention on solvency-triggered termination rights (STTRs), which allow trustees to terminate buy-in contracts if an insurer’s solvency coverage ratio falls below an agreed level.

While such provisions are typically limited to very large transactions, insurers are now required to notify the regulator when STTRs are included in contracts, with the PRA highlighting liquidity, asset concentration and operational risks that firms must better demonstrate they can manage.

In addition, the introduction of the Matching Adjustment Investment Accelerator (MAIA) in 2025 is expected to allow insurers to invest more quickly in new asset classes.

Hymans Robertson suggested this could provide a modest boost to insurer capacity and pricing in certain circumstances, including where pension schemes hold matching-adjustment-type illiquid assets that could be transferred as part of a premium.

Commenting on the review, Hymans Robertson partner and risk transfer specialist, Michael Abramson, said: “For pension schemes that have buy-in policies or are considering using insurance at some point, the huge amount of regulatory activity this year should be of interest as it can have a bearing on both insurer pricing and security.

“The highlight of the year has been the PRA’s stress testing of major buy-in insurers, demonstrating the insurance sector’s resilience to major shocks, but we have also seen funded reinsurance under the regulatory spotlight," he continued.

“Other areas of focus have been buy-in termination rights, which are generally only relevant for the largest pension schemes, and some changes designed to make it quicker for insurers to invest in new asset classes.

“Looking ahead to 2026, with the exception of stress testing, we expect no let-up in regulatory activity.

"The agenda is to ensure the sector's resilience, identify emerging risks early, and support competition and innovation," Abramson added.

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