On 12 December 2025, the Prudential Regulation Authority (PRA) imposed a financial penalty of £10.6m on UK Insurance Limited ("UKI Limited") in connection with a miscalculation of its Solvency II balance sheet during 2023 and 2024. The miscalculation resulted in UKI Limited overstating its solvency to the PRA and to the market.
UKI Limited is a subsidiary and principal underwriter of Direct Line Group ("DLG") and is now part of Aviva plc following Aviva's acquisition of DLG on 1 July 2025.
The case is significant, because it is the first in which the PRA's Early Account Scheme ("EAS") has been used.
Background
The PRA found that there was an internal accounting miscalculation due to the mistaken double-counting of an asset in the Solvency II balance sheet used to determine Own Funds for regulatory reporting, which led to an overstatement of the firm's Solvency Capital Requirement ("SCR") Coverage Ratio.
This error was attributable to ineffective preventative and detective controls and resourcing and expertise issues in the firm's finance and actuarial functions, which had become overstretched and under-resourced. These problems were exacerbated by changes to accounting standards, as well as the undertaking of a significant new reinsurance business in Spring 2022 - a transaction of a nature the firm had never previously undertaken.
The error was discovered by the firm itself and was announced to the market and notified to the PRA.
Between June 2022 and August 2024, the firm was found to have breached the following rules:
PRA Fundamental Rule 6 (a firm must organise and control its affairs responsibly and effectively): The double-counting error exposed ineffective preventative and detective controls within the firm, as well as the effect of resourcing issues in its finance and actuarial functions.
Rule 6.1, Notifications part of the PRA Rulebook: The firm did not take reasonable steps to ensure that the information given to the PRA in its Quantitative Reporting Templates ("QRTs") and the 2023 Solvency and Financial Condition Report was accurate.
Rules 2.4 and 3.2, Reporting part of the PRA Rulebook: The firm failed to ensure that the information about the level of its Own Funds and its SCR Coverage Ratio that it published pursuant to the PRA's rules was relevant, reliable and comprehensive.
Early Account Scheme
The EAS was introduced by the PRA in December 2023 as a mechanism to encourage early resolution of enforcement cases. Under the EAS, a firm that is the subject of an enforcement investigation may volunteer to provide the PRA with a comprehensive account of the facts and matters relevant to the investigation at an early stage. In exchange for providing such an account - and subject to certain conditions being met - the firm may be eligible for an enhanced settlement discount of up to 50% of the financial penalty that would otherwise be imposed, as compared with the standard maximum settlement discount of 30% available under the PRA's existing settlement framework.
The EAS is designed to reduce the time and cost associated with enforcement proceedings for both the PRA and the firm concerned. The present case represents the first occasion on which the EAS has been applied, and the PRA's decision to award the full 50% discount provides an indication of the benefits that firms may obtain through early and constructive engagement with the regulator's enforcement process.
Penalty calculation
The penalty followed the PRA's standard five-step methodology. The PRA determined that 2023 revenue of the firm was not an appropriate measure of seriousness and instead applied a matrix based on firm size and seriousness. The PRA regarded the firm's misconduct as level 1 (least serious) and categorised the firm as a Category 2 firm based on its size. Applying the PRA matrix gave a starting point for the fine of £25m.
Taking into account the way in which the firm self-identified the error and took immediate remedial action, the PRA considered it merited a downward adjustment of 15% to this figure.
If the PRA and the firm upon whom a financial penalty is to be imposed agree to settle a case involving a financial penalty, the subject will be entitled to a reduction in the amount of that penalty. The reduction, known as a settlement discount, is determined by the PRA in accordance with its policy. In the present case the PRA agreed to the firm's request to participate in the EAS. Accordingly, the maximum settlement discount available in this case is 50% of the pre-discount penalty amount.
The PRA considered the firm merited a full 50% discount noting that:
- The Firm engaged proactively and candidly with the PRA, providing a comprehensive, timely, accurate and fulsome Account;
- By providing that Account, the Firm materially assisted the PRA in the efficient and effective conduct of the investigation;
- Shortly following production of the Account, and significantly in advance of any settlement proposal being put to the Firm by the PRA, the Firm made admissions, both as to relevant facts and regulatory rule breaches;
- The Firm has satisfied the PRA that it neither repeated nor failed to stop the behaviour giving rise to the breach; and
- The Firm has satisfied the PRA that it has carried out adequate and prompt remediation.
Comment
The compilation of statutory and regulatory accounts for large insurers is a complex task requiring a high degree of technical expertise. That an error of this nature can find its way into an insurer's accounts is perhaps not surprising. Nevertheless, the PRA places great store on accurate regulatory reporting and the imposition of a penalty was perhaps inevitable. Had UKI Limited not itself identified the error, it may not have been readily discovered through the PRA's own supervisory processes, and the firm was quite rightly given mitigation credit for doing so.
This case is of most interest to practitioners because it is the first time that the EAS has been put into effect. The PRA's decision to award the full 50% discount - on top of the 15% mitigation for the firm's conduct following discovery of the error - demonstrates the significant benefits that early and constructive engagement with the regulator's enforcement process can yield. In this instance, the combined effect of the mitigation adjustment and the EAS discount reduced the penalty from £25m to £10.6m. Firms facing potential enforcement action would be well advised to consider the EAS at the earliest opportunity, particularly where they are in a position to provide a comprehensive account and to make prompt admissions. The EAS is perhaps most appropriate for issues involving failures of systems and controls. It is not appropriate where the firm fundamentally disagrees with the PRA's characterisation of the conduct or does not accept that a breach has occurred. Similarly where the alleged misconduct is ongoing, or where the full scope of the breach is not yet understood, the firm may not be in a position to provide a timely and comprehensive account at an early stage.