Solvent Exit Planning: Closing the Door Before the Horse Has Bolted

The Financial Services Compensation Scheme (FSCS) has a whole website page dedicated to identifying the list of insolvent insurers with which it's currently involved.¹ These insurers have unresolved liabilities, and the vast majority — almost 50 — are general insurance companies, with the date of failure spanning the last five decades.

The ongoing involvement of the FSCS over so many years is a clear reminder of the harm to policyholders that can arise and provides much of the rationale for the rules on solvent exit planning. Insurance policyholders bear the ultimate cost of the FSCS involvement, giving us all an interest in the Prudential Regulation Authority (PRA) approach to seeking a more efficient mechanism for ensuring fewer firms end up in an unexpected and unplanned insolvent scenario.

Solvent exit planning — the consultation.

This work started as part of the PRA Business Plan for 2022/2023, published on 20 April 2022, with the final rules for insurers confirmed in June 2025. The 2022/2023 Business Plan committed the PRA to taking action across the banking and insurance sectors, but it elected to split the work and prioritised the banking sector, with the consultation paper for non-systemic banks issued back in June 2023.

The plan introduces two main requirements:

Solvent Exit Analysis (SEA). Firms must prepare for a solvent exit as part of their business-as-usual activities and ensure they document those preparations in a SEA. In short, the SEA explains how the firms will act if insolvency becomes a realistic prospect.

Solvent Exit Execution Plan (SEEP). The SEEP states how firms will monitor increased risk of insolvency and, if the risk does increase, how the firm would achieve a solvent exit from the market. Given how much emphasis our regulators now place on effective communication between firms and the regulator, we would suggest that a communication plan with the regulator is part of that SEEP.

These new requirements closely align with the approach that firms adopted when required to document recovery and resolution plans, where they identify potential scenarios necessitating such action and create a plan for managing impact.

The primary difference between the proposed SEA and SEEP requirements and recovery and resolution plans is the insolvency driver that prevailed as a trigger for the development of such plans.

Firms are expected to review their SEA at least every three years, and sooner if a material change takes place. Drivers of material change might include new distribution channels being assessed when entering new geographies, significant growth — including through major acquisitions — or expanding into materially new products. We would expect firms' SEAs to identify scenarios that might pre-empt the need to articulate a SEEP, in addition to triggers for implementation and indicative key risk indicators.

If a solvent exit becomes a reasonable prospect, firms have one month to produce their SEEP and provide it to the PRA. In reality, we suspect many firms will maintain a draft SEEP covering management action plans and board requirements as well as addressing third-party implications, as part of their wider approach to risk management.

Our experience in supporting clients with creating and managing their recovery and resolution plans suggests that the practicalities of developing SEAs and SEEPs for most firms will resemble strong business continuity or operational resilience frameworks, where there's a 'plan within a plan'. The identification of what might occur is updated periodically, supplemented by dry run exercises to assess potential impacts, giving firms the opportunity to bake mitigating actions into their operational frameworks ahead of time.

Firms in scope.

The PRA has given careful thought to the application of these rules to different types of firms. There are some subtle differences and some scenarios where these rules won't apply, a recognition of the proportionality and risk to consumers that's very low in some cases.

• UK Solvency II and non-Directive firms: The expectations are intended to sit alongside the ladder of intervention and include Solvency II firms. Non-Directive firms can be more at risk of a disorderly exit, so they're also included.
• Society of Lloyd's and managing agents: The Society of Lloyd's is in scope. As part of the PRA's co-operation agreement with the Society, the Society will be responsible for ensuring the orderly runoff of unviable managing agents and for maintaining market stability.
• Internationally Active Insurance Groups (IAIGs): UK Solvency II firms that are part of an IAIG will be expected to build on their international resolution plans, where these exist. For EU firms, the introduction of the new European Insurance and Occupational Pensions Authority (EIOPA) Insurance Recovery and Resolution Directive (IRRD) in early 2027 will add a new angle. We'll be working with our EU based colleagues to support IAIGs.
• Group and solo entities: The rules provide that firms that are members of a Solvency II group should consider the implications and risks from group membership when preparing their SEA. While groups themselves aren't within the scope of the proposals, solo firms that wish to submit a group-wide SEA (as opposed to solo level) can do so, with prior PRA agreement. This approach seems very sensible to us given the corporate complexity of some of the larger insurance firms now.
• Mutuals and friendly societies: While mutuals and friendly societies have additional considerations given their complex governance structures, the PRA includes them since they're also at risk of disorderly exit.
• Run-off acquirers: Run-off acquirers are actively running off contracts of insurance but don't normally intend to exit the market themselves. For this reason, the PRA also includes these firms. The considerations for such firms are likely to be more complex, given they don't have the traditional income stream from a live portfolio.

The rules exclude two types of firms. Logically, firms already in a passive run-off scenario aren't subject to the new requirements. The other is UK branches of overseas firms, where any failure would be the result of failure of the overseas legal entity, which is subject to regulation in its home market. With many UK branches potentially on a path to full UK regulation, this area needs to be considered part of any planning for UK authorisation. The IRRD rules may also be relevant here, depending on where the parent entity is domiciled.

A note for solo-regulated firms.

The UK rules on SEA and SEEP are firmly the responsibility of carriers. But the Financial Conduct Authority (FCA) has similar rules, albeit from the perspective of distributors, requiring firms with Part 4a permission to have a similar wind-down plan in place. The consequences of financial failure of a distributor are very different from those of a carrier, but the risk of harm remains. Whilst existing firms are expected to have their wind-down plans in place, the plans are an area of focus for the FCA currently and one that those firms seeking authorisation need to articulate as part of their applications.

Next steps.

Firms should be well on their way to completing the work required by the PRA ahead of the 30 June deadline for doing so. But that deadline isn't the end of the matter, with ongoing work likely to be necessary if:

• Significant changes to a firm's business model warrant a review of the plans in line with PRA requirements.
• The firm reaches the three-year review deadline and is required to review and update its plan.
• The firm needs to edit any aspects of its planning to bring UK and EU plans in line following the January 2027 implementation of EIOPA's IRRD rules.

Conclusion.

The solvent exit planning rules are well thought out, with some pragmatism exercised in scenarios where the risk of harm to consumers is very low. As firms move towards completion of the initial work, they should ensure that they've completed a formal review of the plan and set out the parameters and timelines that may trigger the need for a review. Timelines are straight forward to manage, but it can be easy to miss the need for review arising from changes to operating models that may not otherwise seem relevant. This sensible solution ensures that the proverbial door is closed before the horse can make its escape. In introducing these new rules, the PRA is seeking to fundamentally reduce the burden on the FSCS that the list of ongoing insolvent insurers demonstrates.

The work required to meet these requirements is likely to sit nicely within existing operational structures, and the planning necessary to develop and maintain the SEA and SEEP is likely to be proportionate once the inevitable initial implementation hurdles are overcome.

If you'd like to discuss an aspect of the way your firm approaches its solvent exit planning and the ongoing requirement to manage time and operational change-based review triggers, please speak with the author or your usual Artex contact.