Review launched into how Solvency II regulations and use of risk margin will be applied nationally
The UK government is planning post-Brexit changes to some of the most contentious aspects of insurance regulation in a move likely to signal a departure from EU rules.
UK insurers must comply with Solvency II, the EU’s insurance capital regime, which came into force in 2016. But industry executives have long complained that the rules are too complex and do not suit the way the UK insurance sector works.
Once the Brexit transition period ends on December 31, the government will be free to set its own regulations. Ahead of that, the government on Monday launched a review of the way Solvency II is applied in the UK.
At the top of the agenda is the risk margin — the part of Solvency II that is most hated by the UK insurance industry and which has also been criticised by the regulator, the Prudential Regulation Authority.
The risk margin is an extra layer of capital that insurers have to hold against some types of long-term business such as annuities. But insurers complain that it is too volatile, and rises too much when interest rates are low.
Speaking to the Financial Times last month Tracy Blackwell, chief executive of Pension Insurance Corporation, said that the risk margin was “insanity” and that it made capital planning “quite tricky”.
In a consultation paper, the Treasury said: “The government intends to work with the PRA to reform the risk margin. Reform could reduce the volatility . . . of insurance firms’ balance sheets and enable them to increase the choice and affordability of products available to businesses and households.”...
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