The Alternative Credit Council (ACC) submitted a response to the Prudential Regulation Authority’s Consultation Paper CP8/26 on the recalibration of the counterparty default adjustment (CDA) for funded reinsurance under Solvency UK.

The ACC supports the PRA’s objective of ensuring that funded reinsurance is capitalised in a manner that reflects its underlying economic risk. However, it does not support the specific calibration set out in the consultation paper. The proposals would raise average capital held against funded reinsurance from approximately 2–4% of annuity liabilities to around 10%, with the CDA itself accounting for roughly 7 percentage points of that increase.The ACC’s response highlights six principal concerns:

• The proposed approach moves closer to a creditor-exposure framework without achieving sufficient risk sensitivity.
• The evidence base for moving from the enhanced supervisory expectations in SS5/24 to a bespoke capital treatment has not been clearly established.
• The CDA gives no credit for capital already held by the reinsurer under its own (including equivalent) solvency regime and makes no allowance for diversification.
• The notching table imposes a disproportionate, non-linear penalty and caps recognition of strong collateral.
• The default treatment for unrated counterparties disadvantages new entrants regardless of parental or guarantor support.
• The proposals risk placing the UK out of step with equivalently supervised overseas reinsurance capacity.

The ACC has called on the PRA to improve the risk sensitivity of the framework, introduce a look-through mechanism for institutional backing of unrated counterparties, publish the loss data underlying the notching calibration, assess the impact on open reinsurance markets, and extend or phase the 30 September 2026 savings provision cut-off. The full response is available here.