Solvent exit planning for insurers – the final furlong

Solvent exit planning for insurers isn’t just about compliance, and it shouldn’t be seen as a hypothetical exercise. The ability to exit the market safely is integral to the wider market, but it can also give insurers greater insight into how their business operates and key dependencies, offering greater scope for growth in the here and now.

But getting to that point isn’t easy and insurers continue to face challenges when making the crucial assessments and decisions to support robust solvent exit planning.

Larger firms aren’t racing ahead 

The insurance sector initially assumed that larger firms would have a smoother journey when creating their solvent exit plans to align with the PRA’s rules. But it hasn’t worked out that way in practice. Mature recovery and resolution frameworks have, in some cases, created a false sense of security as solvent exit planning requires different assumptions, operational considerations and an alternative way of thinking. Similarly, although firms have been able to build on Solvency II infrastructure for financial modelling, many have underestimated the additional effort needed to meet solvent exit planning requirements.

Meanwhile, mid-tier and smaller insurers haven’t been able to fully engage with the process due to competing priorities and leaner resourcing models. As such, many are drawing on emerging good practice and standardised templates to meet the compliance deadline. But there is a trade-off here – speed comes at the expense of depth and early iterations will need further refinement over time to meet PRA expectations.  

‘Black swan’ thinking is inherently tricky 

The underlying, and uncomfortable, question for solvent exit planning is: 'what would realistically cause this firm to exit the market, even while solvent?'. 

For well-capitalised insurers with strong liquidity positions, this type of ‘black swan’ thinking doesn’t come naturally. Workshop participants are often cautious and reluctant to imagine how their current business model could become unviable. The quality of analysis tends to improve when firms bring together a wider range of cross functional, senior stakeholders, and anchor discussions in real‑world examples.  

This is where solvent exit planning begins to demonstrate value beyond compliance with PRA expectations. It requires firms to articulate the point at which continued trading is no longer preferable to an orderly exit, and to distinguish between strategic exits and stress‑driven scenarios. 

Senior and diverse input is crucial 

Solvent exit planning for insurers shouldn’t be limited to the finance or actuarial team. As an enterprise-wide issue, firms need input from operations, IT, HR, legal, customer strategy and third parties. Broader insight will result in a more realistic, actionable plan that reflects key dependencies and how the business works in practice. This includes non-financial resource planning, which is an area that’s typically undeveloped at first, but becomes more detailed and credible with input from operational leaders. 

Seniority also matters. Where discussions are driven solely by technical teams, plans can be theoretically sound, but they aren’t operationally feasible. Executive level engagement significantly improves the quality of challenge, especially around strategic options and trade‑offs. 

Run-off is a credible option for solvent exit  

Early solvent exit plans had limited consideration of run-off scenarios, but the PRA has made it clear that firms need to consider them as a credible option, alongside Part VII transfers or disposals. This has prompted a significant shift in the sector’s thinking, as firms start to consider how life and non-life insurers could approach long-term liabilities. A more holistic view of exit strategies could lead to greater scope for innovation. 

Don’t underestimate financial modelling 

Many firms have underestimated the challenges around financial modelling for solvent exit planning for insurers. Firms have typically over-relied on capital metrics, rather than cash flow and liquidity throughout the exit period. The PRA has consistently reinforced that liquidity – not just solvency coverage – is central to credible solvent exit plans.

It’s also important to take a granular, but proportionate approach. For larger, more complex insurers this means modelling monthly cash flows, particularly where exit options involve transactions or accelerated run‑off. Smaller firms may not need to go to the same level of detail, but they must still clearly identify liquidity cliff edges and stress points.

Financial modelling also needs to align with the exit strategy. Annual projections may be adequate for a pure run‑off, but they are unlikely to demonstrate control and viability for sales or transfers.  

Inter‑group dependencies and third-party risk  

When finalising solvent exit plans, insurers need to consider inter-group dependencies and third-party risk. While this is often touted as a key consideration, it’s still regularly overlooked and deeper analysis is needed. 

The role of assurance  

The need for ‘appropriate assurance’ has become one of the most constructive conversations around solvent exit planning for insurers. Internal audit teams have played an invaluable role, but many firms have recognised the value of an external perspective - particularly when assurance is embedded during plan development rather than at the end.

Assurance over solvent exit plans need to take a broader view to assess whether they meet the spirit of the regulation. The most valuable assurance challenges whether assumptions are realistic, whether barriers are genuinely addressed, and if governance is sufficiently robust to support the execution of the plan under stressed conditions.

Looking beyond compliance 

Taking a broader view across the sector, insurance firms that have meaningfully engaged with solvent exit planning have found it more useful than expected. It’s sharpened strategic thinking, exposed hidden dependencies and improved decision-making processes under stress. As such, there’s a good case for revisiting the plans more regularly than the minimum regulatory interval.

From here, firms need to continue to build on these benefits to ensure solvent exit plans remain living tools that continue to add value, boost resilience and offer greater strategic clarity.  

For more information on solvent exit planning for insurers, contact Klaas de Vries.