The Prudential Regulation Authority (PRA) has launched a consultation on allowing life insurers to package risk for the capital markets, to help life insurers’ access alternative forms of capital and support sustainable growth in the UK economy.

Following market feedback suggesting traditional sources of capital, such as listed equity and debt, are becoming less accessible for some firms, the regulator is considering various structures such as modified Insurance Special Purpose Vehicles (ISPVs) or approaches used in other markets.

While General insurance (GI) firms already use transformer vehicles for transferring insurance risk to capital markets, these are better suited to short-term use, the PRA said, adding that it plans to work collaboratively with the industry to identify potential changes to the existing insurance regulatory framework to support firms in accessing third party capital.

Potential use cases for capital flexibility include:

  • Patient asset deployment: By partnering with third-party capital providers who are willing to accept short term volatility, UK life insurers could take a longer-term view of investing annuity premiums.
  • Demographic reinsurance capacity: Alternative life capital could provide additional capacity allowing UK life insurers to diversify their reinsurance counterparties. Investors could assume the longevity / mortality risk on a portion of a life insurer’s book, investing in risks that are largely uncorrelated to traditional investment risks.
  • Management of credit risk concentrations: Alternative life capital could allow life insurers more flexibility in the management of the credit risks on their investment portfolios, balancing the needs of their shareholders while making the most of the opportunities available to them. Alternative life capital could assume the credit risk on a portion of an insurer’s asset portfolio, freeing it to deploy its own capital elsewhere.
  • Supporting annuity transactions: It could also be possible for alternative life capital to be used to support some, or all the capital required for a given block of annuity business. This could be structured as a partnership where an insurer remains responsible for the management of the investment portfolio, and the administration of the claims, but the unexpected risks associated with the business are transferred. It could also be used where UK pension scheme sponsors opt to retain some participation in the underlying economics of their pension schemes.
  • Breadth of life insurance business models: While the PRA is impartial as to the legal status of firms, it recognises the value of corporate diversity and understands the unique role that mutuals play in the fabric of the wider financial system. In particular, mutual insurers may support sectors of the market which are underserved by proprietary firms. Alternative life capital could potentially provide flexibility to the UK mutual business model by providing some firms with an alternative means to access additional capital.
  • Product development: There is a growing protection gap in life and retirement products globally, given the ageing populations in developed economies. To address this gap, life insurers need to innovate, and alternative life capital could provide insurers with flexible access to an investor base that may aid innovation.

The deadline for responses to the discussion paper is 6 February 2026.