UK insurer solvency remains strong but aggregate position slips

UK insurers maintain a comfortable aggregate solvency position, but there has been a modest weakening across the market.

That is according to the latest research from Insurance DataLab, published exclusively by Insurance Times. 

The market intelligence firm’s analysis of insurer Solvency and Financial Condition Reports (SFCRs) for the last three years found that the market’s aggregate solvency coverage ratio (SCR) fell to 190% in 2025/26, down from 195% in both 2024/25 and 2023/24 for the same cohort of insurers.

This means that the market held eligible own funds equivalent to almost twice its combined solvency capital requirement – well above the 100% regulatory threshold stipulated under the Solvency UK rules.

However, the five percentage point fall represents a slight deterioration following two years of relative stability and suggests the amount of surplus capital held across the market has begun to tighten.

The minimum coverage ratio (MCR) tells a different story, with aggregate positions improving significantly. This measure stood at an aggregate 426% for 2025/26, up from 414% the previous year and 404% for 2023/24.

This leaves eligible own funds covering the minimum capital requirement at more than four times the regulatory minimum.

Insurers usually operate at a significant level above both thresholds to protect against market movements, support growth and maintain an appropriate buffer for their individual risk profile. The distance above 100% is therefore an important measure of headroom, even where the regulatory minimum continues to be met comfortably.

This is also why Insurance DataLab uses 125% as a key benchmark within its Insurer Performance Index, which rates insurers across claims, complaints, solvency and underwriting.

While it is not a formal regulatory threshold, falling below this level leaves an insurer with relatively limited headroom above the 100% requirement and may attract closer regulatory scrutiny.

The benchmark therefore reflects the practical reality that regulatory attention can increase before an insurer breaches its solvency capital requirement, particularly where its position is deteriorating or it risks falling below 100%.

Market movements?

While a useful measure, the aggregate market position does mask a significant level of variation between insurers, with the median SCR moving from 182% in 2023/24 to 185% the following year, before recovering further to 188% for 2025/26.

This suggests that the market did not experience a uniform reduction in its capital position, with movements among insurers with the largest capital requirements being sufficient to pull down the combined position even as the median company-level ratio improved.

Looking more deeply at the data also shows that more than one-in-five insurers (22%) reported an SCR below 150% in 2025/26, significantly higher than the 14% recorded the previous year and the 16% for 2023/24.

Importantly, no insurer reported an SCR below the 100% regulatory threshold during the three-year period, although one insurer sat exactly at this level in each year.

The market therefore remains compliant overall, with all insurers at or above the 100% threshold, but the growing proportion below 150% points to a thinner buffer among a meaningful – and growing – minority of insurers.

At the other end of the scale, the proportion of insurers with an SCR above 300% has climbed to 13% in 2025/26 – up slightly from 11% in 2024/25.

Taken together, these figures show an increasingly polarised market, with growing numbers of insurers with SCRs at the extreme ends of the solvency spectrum.

Capital tiering

Reassuringly, Insurance DataLab’s analysis also found that the capital supporting the market remains overwhelmingly concentrated in the highest-quality tiers.

Under the Solvency UK regime, insurers’ available own funds are divided into three tiers according to their quality and ability to absorb losses. This assessment considers factors such as whether the capital is permanently available, whether payments or distributions can be cancelled and where the provider of that capital would rank if the insurer failed.

Unrestricted tier one is considered the highest-quality capital because it is permanently available to absorb losses while an insurer continues trading, as well as in the event of its failure. It typically includes ordinary share capital, associated share premiums and retained profits held within the reconciliation reserve.

Unrestricted tier one accounted for 84.0% of the market’s total available own funds for the solvency capital requirement in 2025/26.

Restricted tier one contributed a further 3.8%. This can include certain preference shares and subordinated instruments that meet stringent requirements around permanence and loss absorption, but is subject to tighter limits on how much can be counted towards an insurer’s regulatory capital.

This means that a combined 87.8% of the market’s available own funds was held in tier one, providing insurers with a substantial amount of capital capable of absorbing losses when they arise.

Tier two capital, meanwhile, represented 11.5% of the market total. This commonly includes subordinated debt and other instruments that can absorb losses but are generally considered less permanent or flexible than tier one capital.

Tier three, the lowest-quality category, accounted for just 0.8%. This can include net deferred tax assets and certain subordinated instruments with more limited loss-absorbing characteristics.

The distinction matters because the headline solvency coverage ratio shows how much eligible capital an insurer holds relative to its solvency capital requirement, but does not on its own reveal the quality of the available capital supporting that position. Two insurers could report the same coverage ratio while holding very different mixes of own funds.

The solvency rules therefore limit how much lower-tier capital can be counted as eligible. Tier one must cover at least 50% of the solvency capital requirement, while tier three must account for less than 15% and tiers two and three combined cannot cover more than half.

The requirements are stricter for the minimum capital requirement. Tier one must account for at least 80% of the capital used to cover it, tier two is limited to 20% and tier three cannot be used.

Almost all the market’s available own funds remained eligible to cover the solvency capital requirement in 2025/26. This reflects the relatively limited reliance on lower-tier instruments and provides further reassurance about the quality, as well as the quantity, of capital supporting UK insurers.

Taken together, the figures point to a market that remains well capitalised, but where the headline aggregate position tells only part of the story.

The improvement in the median SCR suggests the typical insurer has strengthened its position, while rising MCR coverage and the concentration of available own funds in tier one provide further reassurance about the market’s underlying resilience.

However, the fall in aggregate SCR, alongside the growing proportion of insurers operating below 150%, shows that this strength is not evenly distributed.

The key question will be whether this narrowing of solvency headroom continues. While the market remains comfortably above its regulatory requirements, insurers will need to maintain capital discipline as underwriting exposures, investment conditions and wider economic risks evolve.

For now, the overall position remains strong, but the growing number of insurers operating with smaller buffers will warrant continued attention.