Apple Watch Ultra doesn’t lock when removed from wrist

Hello,

I paired my new Apple Watch Ultra 2 with my phone. The OS on both my phone and watch are upto date. I have a passcode set while seeing my watch. However, when I remove my watch out of my wrist, my watch doesn’t lock and never asks for a passcode. Wrist detection is turned on in my watch app.

All passcode options are greyed out.

I tried unpairing my watch, I tried watch reset. nothing works.

can some one suggest if you had the same problem and were able to resolve?