The Bank of England’s regulatory arm on Wednesday set out plans to tighten the capital treatment ​of funded reinsurance, a type of deal in which life insurers pass ‌on risk to offshore reinsurers.

British life insurers will have to increase the amount of capital they hold against these transactions to about 10 per cent, up from about 2 per cent to 4 per cent currently, the Prudential ​Regulation Authority said.

The move is the latest step by the Bank of England ​to address risks arising from the growing links between private investors and ⁠the banks and insurers it regulates.

Funded reinsurance has been growing rapidly, with the ​PRA estimating current exposure of UK firms at around 40 billion pounds ($54 billion), and is ​expected to grow to 100 billion pounds over the next decade.

Offshore reinsurers are increasingly backed by private equity. Firms including Apollo (APO.N), KKR (KKR.N), CVC (CVC.AS) and Carlyle (CG.O) are among those that have expanded into the ​sector.

Large UK life insurers include Aviva (AV.L), Legal & General (LGEN.L) and Standard Life (SDLF.L)

The regulator has concluded ​the current approach underestimates the risks and unduly favours funded reinsurance structures over other similar exposures.

“We want ‌to ⁠act now to correct this imbalance before it grows to pose more material risks across the sector,” said Gareth Truran, an executive director at the BoE.

The regulator has previously described the regulatory treatment of funded reinsurance as a “quirk” and said the deals appear ​to be driving investment ​away from assets that ⁠support the UK economy and instead towards internationally based reinsurers.

The UK is not the only jurisdiction examining the growing ties between ​private investors and insurance, with regulators in Europe and the United States also ​scrutinising reinsurance.

The ⁠PRA’s proposals will be put to a consultation with responses requested by July 31. The changes would apply to deals completed from October this year.

Huw Evans, UK head of insurance ⁠at ​KPMG, said: “The PRA has gone further than its global ​peers in regulating funded reinsurance….Insurers may question this departure from the principles-based framework and the wider growth agenda.”