Overview: The practical implications of climate regulations on UK insurers

In January 2026, Milliman convened a roundtable discussion with eight UK risk and sustainability professionals to explore the practical implications of the Prudential Regulation Authority's (PRA) climate Supervisory Statement (SS) 5/25 on insurers.¹ The session brought together senior practitioners from life and health firms to discuss the challenges of implementing the new regulatory expectations, integrating climate-related risk into business-as-usual (BAU) processes and positioning their organisations for long-term resilience.

The discussion, which was facilitated by the authors of this paper, was conducted under Chatham House rules to encourage candid dialogue. The insights shared reflect real-world challenges and strategic considerations facing the industry as it navigates this evolving regulatory landscape. We extend our sincere thanks to all participants for their valuable contributions.

The expanding scope of UK climate regulations

SS 5/25 represents a significant evolution in the PRA's approach to climate-related risk management for insurers and banks. Superseding SS 3/19² and following Consultation Paper (CP) 10/25,³ the new statement expands from 32 paragraphs to 140, offering substantially enhanced clarity and comprehensive guidance on regulatory expectations.

Participants observed that although much of the core substance remains consistent with previous guidance, SS 5/25 introduces important shifts in emphasis. The statement places greater weight on materiality, proportionality and evidence-based approaches to risk management. Additionally, there is the explicit inclusion of operational risk compared to SS 3/19’s financial risk focus.

The concept of proportionality emerged as a key discussion point. Participants noted that proportionality is now explicitly interpreted as being relative to risk exposure, not merely firm size. This represents a more sophisticated regulatory stance, acknowledging that smaller firms with concentrated climate exposures may face material risks requiring comprehensive management frameworks. However, participants expressed some uncertainty about how the PRA will interpret and apply proportionality in practice, particularly during supervisory reviews.

The discussion also reflected a broader shift in the climate-related risk narrative. With the PRA explicitly highlighting in SS5/25 Clause 2.6 that some combination of physical and transition risk ‘will emerge’⁴ (compared to ‘high degree of certainty’⁵ in SS 3/19, Clause 2.5), the regulatory conversation has evolved from risk identification toward resilience and adaptation strategies. Participants acknowledged this shift whilst raising concerns about uneven understanding of these issues across the industry and the continued need for regulatory clarity in certain areas.

A recurring theme was the PRA's increased emphasis on justification and integration. Firms are now expected not only to identify and assess climate-related risks but to demonstrate clearly how these risks are managed and how risk outcomes are systematically fed back into business decision-making processes. This requirement for traceability from materiality assessments through to first-line actions represents a significant step up in regulatory expectations.

Scenario analysis and board engagement

Board accountability emerged as a central pillar of SS 5/25, with substantially increased expectations for board oversight and challenge. Although explicit requirements for board training have been softened from CP 10/25, participants agreed that there remains an implicit expectation that boards are sufficiently informed and capable of engaging meaningfully with climate-related risk issues. This necessitates clear governance structures, well-defined risk taxonomies and robust traceability from high-level materiality assessments to operational actions.

A nuanced challenge that was discussed was the pushback some participants face when presenting integrated climate scenarios to boards and senior management. Participants observed that as climate-related risks become increasingly embedded within broader scenario frameworks, the perceived distinction between climate-related scenarios and conventional stress testing is difficult to convey, such as for macroeconomic scenarios resulting from climate drivers. There is an opportunity here to step up training for boards on these more nuanced matters or alternatively highlights the need for clearer articulation by risk or sustainability teams of when integrated versus standalone climate scenarios are most appropriate. These scenarios should be supported by narrative descriptions of causal pathways linking climate factors to scenario outcomes.

The group agreed that in some instances, dedicated climate scenarios remain necessary, particularly to capture extreme or non-linear climate events that conventional BAU stress testing may not adequately address. The facilitators noted that firms must be able to demonstrate clearly how climate considerations inform both integrated and climate-specific scenario analysis, with transparent justification for why a particular scenario qualifies as climate-focused. Without this clarity, there is a risk of undermining the meaningfulness of the analysis and failing to meet regulatory expectations.

Milliman has supported firms of various sizes in developing tailored climate scenarios that reflect their specific risk profiles and implementation capabilities. We have also supported the construction of clear scenario narratives for boards, enabling effective oversight and decision-making.

Integrating and categorising climate-related risk

The question of how to categorise and integrate climate-related risk within existing risk frameworks generated varied perspectives among participants. Some firms are embedding climate-related risk within traditional risk categories—credit, market and operational risk—whereas others are treating it as an emerging or cross-cutting risk requiring separate governance and reporting.

Participants acknowledged that both approaches present distinct challenges. Embedding climate risk within existing categories can facilitate integration into BAU processes and leverage established risk management infrastructure. However, this approach risks diluting the visibility of climate-related risk and may fail to capture its cross-cutting nature and potential for non-linear impacts. Conversely, treating climate as a separate risk category can enhance focus and accountability but may create silos and complicate the integration that regulators increasingly expect.

A hybrid approach may be most effective, recognising both the cross-cutting impact of climate-related risk and its emerging, evolving nature. Such an approach would maintain dedicated oversight and analysis whilst ensuring climate considerations are systematically integrated into existing risk categories and decision-making processes.

Milliman has supported clients in developing process-focused frameworks for similarly complex and non-linear risks, providing a unified view of risk across the organisation whilst maintaining the granularity necessary for effective management.

Readiness for the June 2026 PRA deadline

By 3 June 2026, the PRA expects firms to have completed an internal review of their current status against the updated supervisory expectations, identifying any gaps and developing a plan to address them; after this date, supervisors may request evidence of these. Participants discussed their firms' preparedness and strategic priorities. Many had begun a gap analysis based on CP 10/25. Some questioned whether formal board approval of implementation plans is required by the deadline, though most agreed it is advisable given the regulatory emphasis on board accountability and oversight. Participants also felt that this would demonstrate that the plan is realistic, costed and that there is a commitment to delivery.

The question of industry benchmarks and templates generated considerable discussion. The facilitators emphasised that firms should not rely solely on off-the-shelf scenarios but must be prepared to justify their choices and tailor analyses to their specific risk profiles. This bespoke approach is essential for demonstrating meaningful engagement with climate-related risks and meeting the PRA's expectations for evidence-based risk management.

There is a comparison here with the evolution of Solvency II, with the expectation that scenario sophistication and industry benchmarking will increase progressively over time. This historical perspective suggests that early movers who invest in robust, flexible frameworks will be better positioned as regulatory expectations continue to advance.

Conclusion: Adapting to the PRA’s new expectations on climate-related risk management

The transition from SS 3/19 to SS 5/25 represents more than a regulatory update—it signals a fundamental shift in how the PRA expects firms to approach climate-related risk management. The emphasis on materiality, proportionality, board accountability and integration into BAU processes requires firms to move beyond compliance exercises toward genuine strategic integration of climate considerations.

The challenges discussed during this roundtable—from scenario development and board engagement to risk categorisation and implementation planning—are common across the industry. However, the approaches firms take to address these challenges will vary significantly based on their risk profiles, business models and organisational capabilities.

Milliman’s climate regulation expertise

At Milliman, we recognise that navigating this evolving regulatory landscape requires not only technical expertise but also practical experience in implementing complex risk frameworks. Equally, we recognise that firms differ significantly in their risk profiles, strategic ambitions and organisational capabilities. Our work with clients across the insurance sector has equipped us with deep insights into the practical challenges of climate-related risk integration, and we tailor our approach to each client's specific circumstances.

As the June 2026 deadline approaches, firms face critical decisions about their implementation strategies. Milliman is able to support organisations through this transition by:

• Conducting gap analyses against SS 5/25 requirements and supporting action plan development ahead of the June 2026 deadline
• Providing independent review of climate risk frameworks and implementation plans for regulatory assurance
• Delivering board and senior management training to strengthen governance and oversight capabilities

We invite you to connect with our team to discuss how we can support your organisation's specific needs.

¹ Prudential Regulation Authority. (2025, December 3). SS5/25 – Enhancing banks' and insurers' approaches to managing climate-related risks. Bank of England. Retrieved February 16, 2026, from https://www.bankofengland.co.uk/prudential-regulation/publication/2025/december/enhancing-banks-and-insurers-approaches-to-managing-climate-related-risks-ss.

² Prudential Regulation Authority. (2019, April 15). Enhancing banks’ and insurers’ approaches to managing the financial risks from climate change: Supervisory Statement 3/19. Bank of England. Retrieved on February 16, 2026, from https://www.bankofengland.co.uk/prudential-regulation/publication/2019/enhancing-banks-and-insurers-approaches-to-managing-the-financial-risks-from-climate-change-ss.

³ Prudential Regulation Authority. (2025, April 30). CP10/25 – Enhancing banks’ and insurers’ approaches to managing climate-related risks – Update to SS3/19. Bank of England. Retrieved on February 16, 2026, from https://www.bankofengland.co.uk/prudential-regulation/publication/2025/april/enhancing-banks-and-insurers-approaches-to-managing-climate-related-risks-consultation-paper.

⁴ Prudential Regulation Authority. (2025, December 3). SS5/25 – Enhancing banks' and insurers' approaches to managing climate-related risks. Clause 2.6. Bank of England. Retrieved February 16, 2026, from https://www.bankofengland.co.uk/prudential-regulation/publication/2025/december/enhancing-banks-and-insurers-approaches-to-managing-climate-related-risks-ss.

⁵ Prudential Regulation Authority. (2019, April 15). Enhancing banks’ and insurers’ approaches to managing the financial risks from climate change: Supervisory Statement 3/19. Bank of England. Retrieved on February 16, 2026, from https://www.bankofengland.co.uk/prudential-regulation/publication/2019/enhancing-banks-and-insurers-approaches-to-managing-the-financial-risks-from-climate-change-ss.