Cannot Create New Passcode on WatchOS11 (linked to iPhone with Company Profile)

I maintain the Microsoft Intune iOS/iPadOS policy that applies to @Mainrights' iPhone & Apple Watch, so hopefully we can figure this out together. There are several iPhone users in our environment who also have Apple Watches (various series) and the MDM policy hasn't changed since 2021. The issue described by Mainrights only began after iPhones and Apple Watches updated to iOS 18 and watchOS 11 respectively. Prior to this major update there wasn't an issue. The inability to unlock the Apple Watch from the iPhone only presents once the iPhone passcode is changed after the software upgrades. Prior to this the Apple Watch unlocked correctly from the iPhone.

So the question is whether there is a policy configuration mistake or a bug in either iOS, watchOS or the Apple Watch app.

The only section of our Microsoft Intune iOS/iPadOS policy that is configured relates to iOS passcodes. Because the Apple Watch is paired with the iPhone it inherits the policy's passcode requirements. We require more than just a numeric passcode (which the Apple Watch is not able to handle) so according to Apple's documentation the Apple Watch should be unlocked when the paired iPhone is unlocked. This is configured by enabling "Unlock with iPhone" in the Apple Watch app on the paired iPhone. When @Mainrights unlocks their iPhone the Apple Watch indicates it is unlocked too, but when trying to use the Apple Watch it indicates that a new password must be set. Of course this is not possible (because of the policy password requirements) and in fact should not appear at all because the Watch is set to be unlocked by the iPhone. Could this be a bug?

The password settings in the Intune iOS/iPadOS policy are as follows. Do any of the settings appear to be causing the issue?

Require password: Yes

Block simple passwords: Yes

Required password type: Numeric

Number of non-alphanumeric characters in password: x (redacted)

Minimum password length: x (redacted)

Number of sign-in failures before wiping device: x (redacted)

Maximum minutes after screen lock before password is required: Immediately

Maximum minutes of inactivity until screen locks: x (redacted)

Password expiration (days): x (redacted)

Prevent reuse of previous passwords: x (redacted)

All other settings in the iOS/iPadOS policy are unconfigured.

Looking forward to responses that may help.

This is a flaw in the way your employer has configured the policy.

Contact your IT department or remove the management profile from your phone.

I suspect the problem is ‘Block simple passwords’.

Do you mean "Block simple passwords" is misconfigured simply by being enabled, or that this is actually an acceptable setting but that it is being mishandled by iOS/watchOS/Watch app and therefore causing an issue? To me this seems an acceptable setting.