Bank of England to Launch Next Life Insurance Stress Test in January 2028

The Bank of England has confirmed that its next life insurance stress test will begin in January 2028, as regulators continue efforts to strengthen oversight of the UK’s insurance sector and assess its resilience to potential economic shocks.

The exercise will be conducted by the Prudential Regulation Authority, the supervisory arm of the central bank responsible for overseeing banks, insurers and major investment firms. The authority said it will begin consultations with insurance companies and market participants throughout 2026, with final plans expected to be published in the fourth quarter of that year.

Life insurance stress tests are designed to evaluate how firms would cope under severe but plausible financial scenarios. These scenarios can include sharp movements in interest rates, significant falls in asset prices, prolonged economic downturns or sudden changes in policyholder behaviour. The goal is to identify vulnerabilities within the sector and ensure firms hold sufficient capital to absorb losses while continuing to meet obligations to customers.

The upcoming test follows previous exercises that examined how insurers would respond to extreme market conditions, including periods of heightened volatility in bond markets and rapid shifts in inflation expectations. Life insurers play a central role in the UK financial system, managing large pools of long term savings and pension assets. Their stability is therefore closely linked to broader financial resilience.

The Prudential Regulation Authority said it will review the scope and methodology of the 2028 exercise as part of the consultation process. This could involve adjustments to the stress scenarios, reporting requirements or the types of firms included in the test. Regulators often refine these frameworks to reflect evolving market conditions, new financial products and emerging risks such as climate related exposures.

The announcement provides firms with a multi year timeline to prepare, allowing them to assess internal risk models, capital buffers and liquidity planning well in advance. Stress testing has become a core supervisory tool since the global financial crisis, giving regulators deeper insight into how financial institutions might perform under pressure.

For life insurers, particular areas of scrutiny typically include exposure to long dated bonds, equity market fluctuations and shifts in interest rate expectations, all of which can materially affect balance sheets. The Bank of England has previously highlighted the importance of ensuring that insurers can withstand sudden market stress without triggering broader instability.

While the 2028 timeline may appear distant, the extended preparation phase underscores the regulator’s intention to maintain transparency and predictability in its supervisory approach. The consultation period will allow industry participants to provide feedback on proposed methodologies and ensure that the final framework reflects current market structures.

The move comes amid ongoing regulatory reforms in the UK financial sector following Brexit, with authorities seeking to balance strong prudential standards with competitiveness and growth objectives. As the insurance industry adapts to changing economic conditions, the upcoming stress test is set to play a key role in shaping capital planning and risk management strategies across the sector.