Solvent exit planning

Solvent exit is an alternative to insolvency or resolution procedures, offering a viable exit path for firms in stress or those wishing to cease PRA-regulated activities. The aim of the policy is to facilitate a smooth, efficient exit.  Firms will be required to transfer or repay (or both) all deposits during this process, which concludes with the removal of their permission to receive deposits under its Part 4A permission, or with the cancellation of this permission altogether. The requirements of SS2/24 become effective from 1 October 2025 and applies to firms that are:

• Not subject to the operational continuity part of the PRA rulebook.
• Not part of a global systemically important institution (G-SII) or other systemically important institution (OSII).

Therefore, most medium-sized and small firms operating in the UK will need to prepare a solvent exit plan.

The PRA expects firms to:

1. Prepare for a solvent exit as part of BAU activities and produce a solvent exit analysis (SEA) document.
2. Produce a solvent exit execution plan (SEEP) when solvent exit becomes a reasonable prospect.
3. Develop robust frameworks for managing and monitoring the execution of a solvent exit.

From 1 October 2025, solvent exit will replace the existing solvent wind down regulations within Chapter 5 of SS3/21. The new rules mandate that firms must prepare for an orderly ‘solvent exit’ as part of their regular operations, and to demonstrate their preparedness to execute a solvent exit. This requirement is distinct from the solvent wind down requirements per SS3/21, where different considerations apply.

Both ‘solvent exit’ and ‘trading wind down’ are concerned with the orderly discontinuation of an operating activity, with minimal disruption to the financial system. However, there are two key differences:

1. Solvent exit applies to the discontinuation of banking book activities, largely, whereas trading wind down applies to trading book activities.
2. Solvent exit applies to non-systemically important banks and building societies, whereas trading wind down rules apply to larger banks, which typically have a significant trading book.

Although the PRA’s solvent exit regime and the Financial Conduct Authority’s (FCA) wind-down planning guide apply to different firms, the latter document is an invaluable source of information that could guide firms with their solvent exit planning.

Solvent exit should be triggered when recovery plans fail, which in turn is triggered when management actions in response to stress events are unable to bring the firm to pre-stress levels. As such, there should be an element of continuity between stress testing, recovery planning, and solvent exit planning.

Conceptually, the trigger for solvent exit should align with the results of firms’ reverse stress testing. However, this should not be considered as the only trigger, and other possible exit scenarios should be considered.

Firms will have to consider how the solvent exit execution plan impacts their ability to meet the minimum regulatory expectations in the Consumer Duty guidelines.

In-scope firms may leverage previous implementations done under their existing recovery planning regime to meet the expectations of the PRA. Firms may also consider the following:

• Reviewing the existing triggers and key dependencies to identify uncertainties and cost drivers associated with solvent exit.
• Enhancing the existing capabilities (for continuing operations), frameworks (including communication and governance), scenario analysis and stress testing regime.
• Identify potential areas where the solvent exit plans may be integrated with the recovery plan and ensure that its solvent exit preparations are consistent with and viewed as complementary to its work in other areas, such as recovery and resolution planning.

In December 2024, the Prudential Regulation Authority (PRA) published its final policy confirming the rules for solvent exit planning for UK insurers (PS20/24), coming into force on 30 June 2026. The rules apply to all PRA-regulated insurers except firms in passive run-off, UK branches of overseas insurers and Lloyd’s managing agents.

This regulation aims to ensure that insurers can exit the market in an orderly manner, protecting policyholders and maintaining financial stability.

PS20/24 introduces two planning documents:

1. Solvent Exit Analysis (SEA) – A business-as-usual document outlining how firms will wind down regulated activities while remaining solvent. This must be updated at least every three years or following any material changes.
2. Solvent Exit Execution Plan (SEEP) – A plan developed only when solvent exit becomes a prospect or upon PRA request, which outlines the steps and governance to implement the solvent exit.

The PRA’s Policy Statement PS20/24 sets out a high-level framework for solvent exit planning that requires firms to outline how they will handle financial obligations, communicate with stakeholders, and manage potential risks during the exit process. By requiring insurers to develop comprehensive and well-documented solvent exit plans, the PRA aims to reduce the risk of disorderly failures that could harm policyholders and destabilise the financial system.

Solvent exit planning should be an ongoing process, with the expectation that insurers integrate it into their business-as-usual (BAU) activities, ensuring the plan is reviewed, kept up to date and remains relevant and effective.

To meet the 30 June 2026 implementation deadline, insurers should: 

• Conduct a gap analysis to assess how current risk frameworks support solvent exit readiness and to identify any gaps that need to be addressed. 
• Develop a proportionate SEA tailored to the firm’s size and complexity. 
• Ensure solvent exit planning draws on and complements existing risk and governance frameworks. 
• Ensure appropriate governance arrangements, such as board oversight for solvent exit planning, are in place.