Governance, risk and controls under Solvency UK

As the implementation of Solvency UK progresses, insurers are turning their attention from high-level regulatory compliance to the practicalities of embedding governance, risk and control frameworks that align with both the spirit and the letter of the new regime. While designed to be more flexible and proportionate than Solvency II, this flexibility does not mean less scrutiny. The Prudential Regulation Authority (PRA) has made it clear that it expects governance structures that are proportionate, effective and demonstrably robust. 

For boards and executive teams, this shift raises some important questions. How should governance frameworks evolve? What changes to oversight, internal controls and reporting will the regulators expect? And how can firms attain a balance between flexibility and accountability?

The evolution of governance frameworks

Solvency UK signals a shift away from one-size-fits-all compliance and places the onus on individual firms to exercise their own judgment and tailor governance to their size, complexity and risk profile. Regulators will pay close attention not only to structures and processes but also to governance culture – how it challenges, oversees and documents decisions – and whether those arrangements will remain fit for purpose as the market evolves. 

Firms, therefore, are likely to revisit their board and committee structures. Key questions to ask include:

• Do our committees combine the right mix of independent challenge and subject expertise?
• Are risk appetites clearly articulated, monitored and reviewed at the appropriate levels?
• Is the flow of management information enabling effective oversight or overwhelming decision-makers with data rather than insight?

Strengthening oversight and internal controls

One of the key lessons from the Solvency II era was that rigid internal controls can become disconnected from real-world risk management. Solvency UK offers more flexibility, but that flexibility comes with accountability, and the PRA will expect firms to be able to explain, and justify, their control environments. This means demonstrating that accountability runs through all levels of an organisation.

Key changes in three areas:

1. Risk ownership and accountability – clear lines of accountability remain fundamental. Firms must ensure that the ‘three lines of defence’ model is more than an organisational chart; it must exist in practice. The first line must own risk, the second must provide credible challenge and the third must test and deliver without duplication. Documentation and evidence of how responsibilities are discharged will be a focal point of supervisory assessments.
2. Operational resilience and control testing – operational resilience has been elevated as a regulatory priority across the financial services sector. Under Solvency UK, internal controls must be able to withstand shocks, with testing regimes adapted accordingly. This includes stress-testing not only financial models but also the operational processes that support them, such as data integrity, outsourcing arrangements and IT resilience.
3. Integration of risk and capital management – The PRA is encouraging firms to integrate risk management more closely with capital allocation. This requires moving away from siloed processes and instead embedding control checks into decision-making around pricing, reservation, and investment. Management reporting and governance packs will need to show a clear connection between risk and capital considerations.

Simpler reporting, more scrutiny

Reporting obligations under Solvency UK are designed to be simpler but expectations around quality and alignment are rising. The PRA has indicated that firms can expect streamlined reporting but with a sharper focus on quality and relevance. 

Three themes have emerged:

• Clarity – regulators want narrative explanations that accompany data, to demonstrate how firms are interpreting their obligations and applying proportionality
• Consistency – internal reporting to boards and committees must align with external reporting to regulators. Discrepancies between internal and regulatory information will attract scrutiny
• Proportionality – smaller or less complex firms will be able to rely on simplified reporting requirements but only where they can demonstrate that their risk profile justifies it. Again, governance is key and firms must be able to explain and defend their position.

Practical steps to prepare for scrutiny

With the PRA’s supervisory approach becoming increasingly outcome-focused, insurers should be using the coming months to test and refine their governance, risk and control frameworks with the expectation that regulators will look beyond policies to see how the arrangements work in practice. 

To prepare for supervisory scrutiny, priority actions should include:

• Reviewing governance arrangements – are board and committee structures delivering effective oversight or are changes needed to improve clarity and efficiency?
• Strengthening documentation – ensure that decision-making processes, risk appetites and accountability frameworks are clearly recorded and readily accessible
• Enhancing MI and reporting – focus on actionable insights rather than data volume, ensuring that boards are receiving information that drives decisions, not lengthy packs that obscure key messages
• Demonstrating proportionality – articulate how governance and controls have been tailored to the firm’s risk profile and be prepared to justify those choices to the PRA
• Testing resilience – run scenario exercises that challenge both financial and operational systems, ensuring that the controls can withstand stress.

Summary

Solvency UK represents an important evolution of the UK’s insolvency regime and allows insurers to design governance, risk and control frameworks that are both effective and proportionate. However, with flexibility comes accountability. The PRA will expect to see evidence that boards and executives are taking ownership, embedding accountability and aligning governance with strategy and risk profile. 

The challenge is not just to comply with the rules, but to embody the spirit of the regime, creating governance frameworks that are transparent, accountable, and resilient, which enable firms to protect policyholders while driving sustainable growth. Insurance firms that treat compliance as a cultural and strategic priority, rather than a regulatory burden, will be best placed to meet all supervisory expectations.

Do you need assistance with your Solvency UK planning? Contact Brighter Consultancy for more information about how we can help.