---
title: "SS5/25 explained: what the PRA's climate supervisory statement means for insurers"
source_url: https://abgalis.com/regulation/ss5-25
canonical: https://abgalis.com/regulation/ss5-25
description: "SS5/25 in full: the 3 June 2026 internal review (not an implementation deadline), scope, the ORSA and SCR expectations, litigation risk as a third transmission channel, and what the PRA declined to do."
publisher: Abgalis Limited
author: Abgalis Research
date_published: 2026-08-22
date_modified: 2026-08-22
keywords: ["SS5/25", "PRA", "PS25/25", "SS3/19", "CP10/25", "ORSA", "SCR", "climate scenario analysis", "transmission channels", "litigation risk", "Solvency II", "proportionality"]
retrieved: 2026-08-22
content_signal: search=yes, ai-input=yes, ai-train=no
citation: "Abgalis Research, 'SS5/25 explained: what the PRA's climate supervisory statement means for insurers', Abgalis Limited, https://abgalis.com/regulation/ss5-25"
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  May be quoted and cited in AI-generated answers with attribution to the author named
  above and a link to source_url. Not licensed for model training or fine-tuning
  (ai-train=no; Art. 4 reservation, EU Directive 2019/790).
---

Regulation · SS5/25

# SS5/25 explained: what the PRA's climate supervisory statement means for insurers

**Supervisory Statement 5/25 — *Enhancing banks' and insurers' approaches to managing
climate-related risks*** — was published on **3 December 2025** alongside **PS25/25**, and
commenced the same day. It replaces **SS3/19 in its entirety** (§3.1).

It is five and a half times longer than the statement it replaced: **182 numbered paragraphs
against SS3/19's 34.** Section 4, "Supervisory expectations", runs to 140 of them
(§§4.1–4.140).

This page is written from the statement itself. Where the market has settled on a reading the
text does not support, we say so and quote the paragraph.

---

## What does SS5/25 actually require by 3 June 2026?

**An internal review. Not implementation, and not a board-approved remediation plan.**

The operative paragraph is **§3.2**:

> "The PRA expects firms to carry out an internal review of their current status in meeting
> the updated expectations set out in this SS. This should be completed within six months of
> commencement of the SS (ie by 3 June 2026). As part of this internal review, firms should
> identify the expectations that require further work for them to meet, and develop a plan
> for how they will address, any gaps."

Three corrections follow, and each matters commercially.

**The six months is expressly not an implementation timeline.** PS25/25 §1.17:

> "With respect to the six-month review period proposed in CP10/25, the PRA has clarified
> that this is not an implementation timeline, but a period during which firms would be
> expected to conduct an internal review of their current status in meeting the expectations
> set out in the final policy."

And PS25/25 §2.10: *"The PRA does not expect firms to close identified gaps within this
six-month review period."* Several respondents asked for twelve months rather than six; the
PRA did not extend the period — it clarified what the period was for.

**There is no board-approval step.** The phrases "board-approved", "board approval",
"approved by the board" and "remediation" appear **nowhere in SS5/25**. §3.2 asks firms to
"develop a plan". Board agreement appears elsewhere and for different things — §3.18 (the
board *"should review and agree the material climate-related risks identified in this process
and record them in the firm's risk register"*) and §4.7 (the board *"should agree and approve
the climate-specific risk appetite statements"*). Neither is a remediation plan.

**Supervisors will not ask before 3 June 2026 — but the bar afterwards is stated.** §3.3
confirms supervisors *"will not ask for evidence of firms' internal reviews… until at least
after the six-month internal review period has elapsed"*. §3.4 sets the standard: firms
*"should be able to demonstrate that their timetable to address any gaps is both credible and
ambitious."*

**These are the only two operative dates in the document** — 3 December 2025 and 3 June 2026.
There is no staged implementation, no later review date, no sunset.

---

## Who is in scope?

**§1.7, in full:**

> "This SS is relevant to all UK insurance and reinsurance firms and groups, ie those within
> the scope of Solvency II including the Society of Lloyd's and managing agents (Solvency II
> firms) and non-Solvency II firms (collectively referred to as 'insurers'), banks, building
> societies, and PRA-designated investment firms… The expectations do not apply to branches
> of overseas entities operating in the UK."

Branch exclusion is the only hard carve-out. UK subsidiaries of overseas-headquartered groups
are in scope.

**There is no size threshold.** §3.9: *"Firms of any size may be significantly exposed to
climate-related risks… What matters most is the materiality of climate-related risk to a
given firm."* Proportionality runs off **materiality**, driven by *"the firm's business model
and the geographical concentration of its balance sheet"* — not off the balance sheet total.

**Chapter 7 splits Solvency II from non-Solvency II insurers.** §4.117: risk management and
risk appetite expectations apply to all insurers; the ORSA, SCR and regulatory balance sheet
expectations (§§4.124–4.140) *"apply only to those insurers subject to those obligations"*.

*A note on terminology: SS5/25 says "Solvency II" throughout. The phrase "Solvency UK"
appears nowhere in it.*

---

## What does SS5/25 change about the ORSA?

This is Chapter 7's centre of gravity, §§4.124–4.128.

**Climate scenario analysis belongs in the ORSA's stress and scenario testing unless
immaterial.** §4.125:

> "As part of the Stress and Scenario Testing (SST) component of their ORSAs, insurers should
> include CSA unless the impact is immaterial… Insurers should consider the latest climate
> science and advances in climate scenario modelling."

**Accepting a material risk now requires an explanation in the ORSA.** §4.124: *"Where a firm
decides to accept a material risk, the PRA expects the ORSA to explain why that was
considered appropriate."*

**Granularity is specified.** §4.126 expects scenarios *"sufficiently granular to stress for
the risks they face (eg tropical storms, flooding, non-natural catastrophes, longevity risk,
mortality risk, credit risk, equity risk, lapse risk)"* built on named parameters — *"sea
surface temperatures, precipitation, GDP, inflation, interest rates, unemployment rates"*.

**Management actions carry a systemic caveat that is easy to miss.** §4.127 requires
triggers and sufficient detail for the PRA to judge reasonableness, then adds:

> "Insurers should be prudent in making any assumptions on market availability, liquidity or
> price levels (eg in respect of reinsurance), bearing in mind the possible systemic nature of
> the scenarios and the potential for other insurers or market participants to act in a
> similar way."

That is a correlation assumption stated as a supervisory expectation: your mitigation cannot
assume a counterparty that is being stressed by the same event.

**Greenwashing enters the ORSA conversation.** §4.128 flags reputational risk where public
climate commitments or sustainability-branded products are *"perceived as misleading if
unclear, or not adequately followed through"* — and notes the reverse exposure, that
*"withdrawing support from these activities could also lead to adverse effects."*

---

## Does SS5/25 create a climate capital requirement?

**No. But climate must be reflected in the SCR where material, and that is a different thing.**

The decisive statement is PS25/25 §2.88:

> "The PRA considers that the existing SCR Rules provide sufficient flexibility for firms to
> take account of climate risks in ways that they consider appropriate. Under the SCR Rules,
> a firm's SCR must be calibrated to ensure that all quantifiable risks are taken into
> account but there is no requirement for a separate or new climate risk capital requirement."

Within SS5/25, **§4.129** expects internal model firms to consider climate impacts on
underwriting, reserving, market, credit and operational risk components where material, and
standard formula firms to consider whether climate changes their standard-formula
appropriateness assessment.

**§4.130 is one of only two sentences in the entire 182 paragraphs that says "must":**

> "In line with the SCR Rules, insurers must capture within the SCR how their view of the
> risks, including climate-related risks, over the lifetime of their liabilities may change
> over a one-year period. This is particularly relevant for insurers with substantial long
> tail liabilities eg annuities or Periodical Payment Orders."

*(The other is §4.123, on diversification under the Prudent Person Principle. Both restate
existing Rulebook obligations rather than creating new ones. Everything else in SS5/25 is
expectation language — "should" appears 257 times.)*

**The PRA concedes the horizon mismatch and resolves it through the ORSA, not the SCR.**
PS25/25 §2.87 acknowledges that *"climate-related risks tend to be longer term and may not
align perfectly with the one-year time horizon of the SCR calculation"*, and §2.90 accepts
that *"there may still be limitations in the current climate modelling capabilities that
insurers use in their SCR calculations, particularly for internal models."*

**One capital consequence is flagged, in the policy statement rather than the SS.**
PS25/25 §2.92: *"The PRA would consider setting a capital add-on where it judges a firm's use
of the standard formula to be inadequate."*

---

## What is new about transmission channels in SS5/25?

**Litigation risk is treated as a potential third channel — and that is a break from SS3/19.**

§2.1: *"climate-related risks arise through two primary transmission channels: physical risks
and transition risks. Climate-related litigation may be a distinct transmission channel or a
subset of physical risks and/or transition risks."*

§2.5 spells out why it matters to insurers specifically:

> "Parties who have suffered losses from the effects of climate change may seek compensation
> from those they hold responsible. Those who pay the compensation may in turn seek to offset
> their financial loss by claiming from an insurer."

Firms may treat litigation as an independent risk type or as a distinct channel — and where
they choose the latter, *"the PRA expects firms to interpret references to transmission
channels throughout this SS to include litigation risk, where relevant."* SS3/19 subsumed
litigation under physical and transition risk (PS25/25 §2.44); SS5/25 does not.

**§2.6 is the passage to read if you read only one.** It sets out three characteristics that
"when considered together, present unique challenges":

> "The risks are systemic. To varying extents, they will affect every customer, every company,
> in all sectors of the economy and across all geographies. **Their impact will likely be
> correlated, non-linear, irreversible and subject to tipping points.** Over time, they are
> likely to occur on a greater scale than other risks that firms are used to modelling and
> managing."

…and, on the asymmetry of acting late: *"Once physical risks begin to manifest in a systemic
way, it may already be too late to reverse many effects through emissions reductions."*

**The model limitation is stated explicitly.** §4.52: firms *"should be aware of the
limitations of the climate scenarios and models they use, which may not capture the full range
and scale of climate-related risks, such as non-linearities and potential tipping points, and
they should account for these limitations in their use of the results."* §4.66 extends this to
*"second-order climate-related impacts or compound risks"*.

**Channel-to-risk-type mapping is now a required step.** §4.20 asks firms to *"assess the
transmission channels through which physical and transition risks impact firms' risk types"*
and adds that *"each entry in the firm risk register should be linked to an existing financial
or operational risk type and the transmission channel should be clearly articulated."*
For insurers, §4.118 lists underwriting, reserving, market, credit, liquidity, operational,
reputational and litigation risk — *"There is potential for these risks to be interrelated and
thus magnified."*

---

## What did the PRA decide not to do?

Often the most useful part of a supervisory statement. From PS25/25's feedback chapter:

| The ask | The PRA's answer |
|---|---|
| **Nature-related risk expectations** | Declined. §2.4: the policy *"is focused on climate-related risk and the PRA has not set specific expectations on nature-related risks"* |
| **Double materiality** | Rejected. §2.6: expectations are *"grounded in the PRA's primary objectives"* — single materiality, explicitly |
| **New disclosure expectations** | None created. §2.68 — to avoid *"duplicative or burdensome requirements"* |
| **Transition plan expectations** | Declined. §2.69. And footnote 23: *"The PRA does not require firms to adopt climate goals, for example net zero emission targets"* |
| **A separate climate capital requirement** | Refused. §2.88 |
| **A prescribed scenario methodology** | Refused. §2.80: *"it does not prescribe a specific methodology, given the diversity of firms' systems and approaches"* |
| **Case studies of proportionate application** | Refused. §2.16: *"Such examples could rapidly become outdated"* — referred to the CFRF instead |
| **Twelve months rather than six** | Not extended; clarified instead |
| **A review of SoP3/15 (Part VII transfers)** | §2.99: not planned — despite a concern that transfers *"may concentrate historical climate-related litigation liabilities into a small number of specialist firms"* |
| **Action on insurability and protection gaps** | Acknowledged, not acted on. §2.101, following representations citing *"the planned end of Flood Re in 2039"*: *"No changes have been made to the final policy"* |

And SS5/25 §3.8 is explicit about where the line sits: *"The setting of business strategy and
risk appetite, with respect to climate-related risks, remains the responsibility of the firm."*

---

## What is the sharpest governance expectation?

**§4.6 — because it reaches individual accountability and pay:**

> "The board and executive management should assign individual responsibility for identifying,
> assessing and managing climate-related risks at an appropriate level of seniority, such as
> to relevant existing Senior Management Function(s) (SMF), and reflect that in the SMF
> holder's/holders' statement of responsibilities… The board should ensure the assigned
> individual(s) have appropriate climate-related risk objectives and that performance against
> the objectives is reflected in the firm's appraisal and reward system, eg in variable
> remuneration."

The board's own bar is calibrated more modestly — §4.2 expects *"a high-level understanding of
the impacts of climate-related risks on the firm's business model"*. Firms *"may leverage
existing governance structures"* (§4.5); the PRA confirmed in PS25/25 §1.17 that new
governance frameworks are not required.

---

## How does proportionality work?

§§3.9–3.22 create a two-step process, and it is one of the largest structural additions
against SS3/19.

**Step 1 — identification, assessment and board sign-off** (§§3.15–3.18), ending with the
board reviewing and agreeing the material risks and recording them in the risk register.

**Step 2 — a proportionate risk management response** (§§3.19–3.20).

**Both steps carry an evidencing duty.** §3.10 and §3.21: firms *"should be able to evidence
or explain how they have made any judgements that underpin the outcomes from steps 1 and 2."*

The relief for smaller or less-exposed firms is in the scenario analysis chapter. §4.49:
firms *"should match their CSA capabilities with the potential impact of climate change on
their business model… For example, by using a mix of narrative-based scenarios quantified by
expert judgement, and more mathematically sophisticated approaches."* And §4.61 provides the
escape hatch: where firms cannot conduct appropriate CSA, *"they should demonstrate an
alternative approach to understand future climate-related risks."*

---

## Where Abgalis fits

SS5/25 asks for something the existing toolset was not built to produce: transmission channels
traced from climate driver to named risk type, carried in a live risk register, reflected in
the ORSA's scenario work and — where material — in the SCR, with the non-linearities and
correlations §2.6 describes made explicit rather than assumed away.

That is a cross-domain modelling problem, not a climate data problem. Abgalis carries all
seven risk domains in one continuously updated model, so the channel from a physical or
transition driver through to underwriting, reserving, market and credit risk is explicit and
current between ORSA cycles.

Accountability for every regulatory judgement remains with the firm. Abgalis is analytics,
not authority.

---

## Sources

All paragraph references are to the published text.

- **SS5/25** — [Enhancing banks' and insurers' approaches to managing climate-related risks](https://www.bankofengland.co.uk/prudential-regulation/publication/2025/december/enhancing-banks-and-insurers-approaches-to-managing-climate-related-risks-ss), PRA, 3 December 2025
- **PS25/25** — [Enhancing banks' and insurers' approaches to managing climate-related risks — Update to SS3/19](https://www.bankofengland.co.uk/prudential-regulation/publication/2025/december/enhancing-banks-and-insurers-approaches-to-managing-climate-related-risks-policy-statement), PRA, 3 December 2025
- **CP10/25** — [the consultation](https://www.bankofengland.co.uk/prudential-regulation/publication/2025/april/enhancing-banks-and-insurers-approaches-to-managing-climate-related-risks-consultation-paper), PRA, 30 April 2025
- **SS3/19** — [superseded 3 December 2025](https://www.bankofengland.co.uk/prudential-regulation/publication/2019/enhancing-banks-and-insurers-approaches-to-managing-the-financial-risks-from-climate-change-ss)

*SS5/25 cites SS19/16 (ORSA) seven times — more than any other insurer instrument — alongside
SS4/18, SS1/20, SS26/15 and SS7/18. Note that SS1/23, cited at footnotes 36 and 68, is
titled "Model risk management principles for **banks**" and its §1.2 excludes insurers and
reinsurers; SS5/25 cites it as supporting guidance, not as an applicable regime.*

---

**Source:** [https://abgalis.com/regulation/ss5-25](https://abgalis.com/regulation/ss5-25) · Abgalis Research, published by Abgalis Limited (England and Wales, no. 17247499)

**Cite as:** Abgalis Research, *SS5/25 explained: what the PRA's climate supervisory statement means for insurers*, Abgalis Limited. https://abgalis.com/regulation/ss5-25

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