4/29/2026 9:38:15 AM | 4 minute read

Notice in a nutshell: PRA fines U K Insurance Limited £10,625,000 in connection with solvency reporting

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Katie Stephen

Co-Head of the Contentious Financial Services Group

Joe Smallshaw

Counsel

Get in touch

Katie Stephen

Co-Head of the Contentious Financial Services Group

Joe Smallshaw

Counsel

On 10 March 2026, the Prudential Regulation Authority (PRA) published a Final Notice imposing a financial penalty of £10,625,000 on U K Insurance Limited (UKI) in connection with a “double-counting” error which led to a miscalculation of UKI’s Solvency II balance sheet during 2023 and 2024 and consequently an overstating of its solvency in its reporting to the PRA. More details on the findings are set out in the table below, but our key takeaways are as follows.

Key takeaways

Financial controls must keep pace with new or novel transactions: Firms undertaking novel or complex arrangements should conduct thorough preliminary assessments of the impact on existing reporting frameworks, ensuring appropriate controls are in place before these arrangements become operational. UKI entered into a material quota share reinsurance arrangement – which was the first of its nature and materiality for UKI – without specifically considering how the transaction would affect its Solvency II reporting or whether existing controls would remain adequate.
Resourcing and capability: The PRA expects firms to maintain adequate resources and communication channels commensurate with their size, complexity of business and demands of ongoing change. Firms should ensure that identified issues with staff capability, training, resourcing and controls are sufficiently addressed. UKI was on notice of issues relating to its actuarial and finance functions and aspects of its control environment, due to work carried out by external consultants and concerns raised by the PRA. Resourcing issues led to stretch during a challenging period and to a failure to prevent the miscalculation or detect it in a timely way.
Accurate and timely regulatory reporting is key to the PRA’s supervisory functions: The PRA regards the provision of accurate, timely and complete prudential data as key to its supervisory approach. In this area, firms should take particular care to ensure internal governance bodies operate with clear action-tracking processes and receive sufficiently granular reporting to enable effective challenge.
Early and candid engagement with the PRA: The PRA’s Early Account Scheme (EAS) was used for the first time. By providing a comprehensive account of events, making clear admissions and taking prompt and effective action to identify and remediate the issues, UKI secured the maximum 50% settlement discount, reducing the penalty from £21.25 million to £10.625 million, and a further 15% reduction for mitigating factors.

Key information

Decision maker	PRA settlement decision makers
Firm	U K Insurance Limited
Related material	None
Sanction	Fine of £10,625,000 following a 50% settlement discount through the PRA’s EAS. In coming to this figure: the PRA did not consider revenue to be an appropriate starting point as it would result in a disproportionately large penalty; the PRA took into account that the breaches persisted for a significant amount of time during which UKI missed detection opportunities; the PRA considered that £25 million was the appropriate starting point; a reduction of 15% was applied on account of UKI’s “exemplary” co-operation with the PRA’s investigation and prompt and effective action immediately following identification of the miscalculation.
Provisions	PRA Fundamental Rule 6 (a firm must organise and control its affairs responsibly and effectively) Notifications Rule 6.1 (accurate information) Reporting Rules 2.4 and 3.2(reliable information)
Relevant period	1 June 2022 to 23 August 2024
Factual findings	UKI entered into a novel and material quota share reinsurance arrangement (Project Athena), against a backdrop of known existing weaknesses in its finance and actuarial functions, multiple competing remediation programmes and commercial projects. Following completion of the project, an error arose through elements of the Project Athena contract being, in effect, counted twice: once in UKI’s Solvency II balance sheet as an asset and again as a debit/offsetting asset in its Technical Provisions. The overstatement in Own Funds grew as the reinsurance asset increased with each quarter of the business written. This double-counting error went undetected, resulting in UKI overstating its ‘Own Funds’ by up to approximately £99.9 million and inaccurate regulatory reporting to the PRA. Key events during the Relevant Period included: external consultants reporting issues with a number of specific controls as well as a thematic observation of ‘stretch in the finance function’ and further control failures, including staff unable to answer questions expected of their roles, a lack of knowledge of accounting concepts and accounting policies, limited documentation capability, and ‘bottlenecks’ in the finance and actuarial functions; senior staff requesting that the reflection of Project Athena in the balance sheet be double-checked but the double-counting error not being detected and the minutes for the following committee meeting not returning to this action item; UKI simplifying the accounting process for Project Athena, which had the effect of unintentionally self-correcting the previously undetected double counting error; and notification to the PRA of a potentially significant issue two days after the error was identified (following a committee member raising a query and internal escalation).
Failings	The PRA found that UKI had breached: PRA Fundamental Rule 6, requiring that a firm must organise and control its affairs responsibly and effectively, by failing to resolve longstanding resourcing and capability concerns within its finance and actuarial functions prior to Project Athena. Amongst other things, resourcing issues, ongoing remediation and changing accounting standards contributed to an inadequate control framework which failed to prevent the double-counting error or detect it in a timely manner. Notifications Rule 6.1, requiring accuracy of information given to the PRA, by failing to take reasonable steps to ensure that the information reported to the PRA during the Relevant Period was factually accurate. Reporting Rules 2.4 and 3.2, requiring the reliability and comprehensiveness of reported and disclosed information, through having submitted incorrect information. The error also impacted the reliability of key prudential information. Although the failings did not result in crystallised harm to policyholders during the Relevant Period, the PRA emphasised that it is concerned with potential as well as actual threats facing its key objectives, and that failures to accurately record and report financial information may lead firms to misunderstand their true financial position and undermine the PRA’s ability to effectively supervise them and provide reliable information to the market.