Insurance Advisory & Remediation – Newsletter – July 2026

Our latest Regulatory Newsletter is now here for your interest and for you to circulate to any interested parties. Read more on the latest headlines below.

This information is intended for professional clients and industry stakeholders. It is not suitable for retail customers or individuals without relevant industry knowledge.

UK Health, Work and Protection Developments

The UK Government continues to progress reforms aimed at supporting individuals to remain in and return to work. Following the Fit Note Reform Call for Evidence in 2024, findings were published in May 2026, with pilot schemes commencing from July 2026 to test alternative approaches to managing sickness absence. In parallel, on 15 May 2026 the Government launched a Call for Evidence to inform a new Mental Health Strategy for England, with responses due by 10 July 2026. 

Separately, the Continuous Mortality Investigation (CMI) recently launched a survey on individual income protection claims management, covering areas including deferred periods, claims assessment, ongoing case management, return-to-work support and key challenges. As noted in its June 2026 newsletter, subject to sufficient interest, the CMI has indicated that a follow-up roundtable may follow, with subscriber participation via [email protected]. The CMI Income Protection Committee is also collecting data to end-2024, with updated experience analysis to follow once submissions are complete.

This is of interest for insurers writing income protection and with significant exposure to long‑term disability and mental health claims because:

• Fit note reform and associated pilots may affect claims incidence, duration and rehabilitation, particularly as new approaches are tested from July 2026
• The mental health strategy reinforces a focus on earlier intervention and prevention, with potential implications for claims experience and product design
• The CMI survey highlights evolving market practice in case management and return‑to‑work support

Actuarial Monitoring Programme

Actuarial Monitoring Programme

The Financial Reporting Council (FRC) has confirmed that its Actuarial Monitoring Programme (AMP) will extend to cover funeral plan solvency assessment reports. This represents a further development of the AMP’s scope, which has previously included reviews of Own Risk and Solvency Assessments (ORSAs), With-Profits business and Internal Model valuation.  The aims of the AMP is for the FRC to assess the effectiveness of its Technical Actuarial Standards.

The inclusion of funeral plan solvency assessments reports reflects the evolving regulatory focus on this sector following the introduction of FCA regulation for funeral plan providers. By bringing these reports within scope, the FRC is seeking to promote high-quality actuarial work, robust assumptions, and clear communication in an area that is critical to consumer protection and financial resilience.

The FRC is currently seeking participants for this iteration of the AMP. Firms interested in taking part should register their interest via the actuarial regulation team ([email protected]).

We will continue to monitor developments in this area, including any thematic findings or observations arising from AMP reviews of funeral plan solvency assessment reports, and will highlight key messages and implications for firms in future editions of this newsletter.

PRA Consultation on Funded Reinsurance (CP8/26)

CP8/26 – Funded reinsurance | Bank of England

The Prudential Regulation Authority (PRA) has published consultation paper CP8/26 on funded reinsurance, setting out proposed changes to its prudential treatment under Solvency UK, reflecting growing regulatory concern as use of these arrangements has increased in the bulk purchase annuity market. 

Funded reinsurance enables insurers to transfer both asset and liability risks, often to offshore reinsurers, but the PRA considers that the current framework does not adequately capture the underlying risks and may incentivise overuse. 

The core proposal is to revise the calculation of the counterparty default adjustment bringing it more in line with the treatment of economically similar assets. This is intended to better reflect credit risk and reduce opportunities for regulatory arbitrage. In practice, this would increase the capital held against funded reinsurance exposures, narrowing the gap relative to direct asset holdings. 

The PRA also highlights systemic concerns, including concentration risk, reliance on private credit and illiquid collateral, and the potential impact of recapturing reinsured liabilities in stress scenarios. 

Additional proposals include introducing a formal definition of funded reinsurance, clarifying credit quality step assignment, and updating expectations in SS5/24. 

The consultation closes on 31 July 2026, with implementation proposed from July 2027. 

The PRA proposes that the new rules will not apply where all risks under a funded reinsurance arrangement have been fully transferred to the reinsurer on or before 30 September 2026.

Frontier AI and Cyber Resilience – Joint Regulatory Statement

The Bank, FCA and HM Treasury joint statement on Frontier AI models and cyber resilience | Bank of England

On 15 May 2026, the Bank of England, FCA and HM Treasury jointly highlighted the increasing importance of “frontier AI” models for cyber risk and operational resilience across the financial sector.

The statement sets out that frontier AI represents a “step-change in capability”, with models already able to identify and exploit vulnerabilities at greater speed, scale and lower cost than skilled human practitioners. As these technologies continue to evolve, regulators expect associated cyber risks to intensify, and firms with weaker cyber security to be more exposed. 

While no new regulatory requirements are introduced, the statement reinforces existing expectations under the operational resilience framework. In particular, firms are expected to ensure that boards and senior management understand AI-driven cyber risks and reflect these in strategy, governance and resourcing decisions. 

The authorities emphasise several priority areas, including faster identification and remediation of vulnerabilities, strengthened management of third-party and supply chain risks, and enhanced protective controls such as access management and network security. Firms are also encouraged to adopt automated and AI-enabled defensive capabilities to keep pace with increasingly sophisticated attacks. 

The statement underlines the need for robust response and recovery capabilities, given the potential for more frequent and disruptive incidents.

The statement also highlights a range of supporting resources available to firms, including guidance and webinars from Cross Market Operational Resilience Group and the National Cyber Security Centre.  

Overall, the message is that frontier AI is likely to accelerate the cyber threat landscape, and firms should proactively adapt their resilience frameworks accordingly.

Revised Auditing Standards

https://www.frc.org.uk/news-and-events/news/2026/06/frc-refreshes-auditing-standards-to-reduce-reporting-burden-and-improve-transparency/

The Financial Reporting Council has announced revisions to key UK auditing standards (ISA (UK) 700, 701 and 720), with changes intended to make auditor reports shorter, clearer and more focused on information that is useful to users of financial statements. The revised standards also introduce enhanced reporting expectations for companies applying the UK Corporate Governance Code, including requirements for auditors to describe how internal controls have been considered in the audit and to report certain significant control deficiencies. The changes will take effect for audits from 15 December 2026. 

Firms outside the formal scope may still engage with the Code and some mutuals and friendly societies align with elements of the code, for example via the Association of Financial Mutuals’ Corporate Governance Code.