In June 2020, the UK Government announced that it would review some of the features of Solvency II to ensure that the regime better reflects the UK insurance sector. The present regime, as implemented into UK law, has been designed to cover the entire EU insurance market but has not been adjusted to take into account certain specific features of the UK market. The aim of the review is to consider how to adjust the UK’s implementation of Solvency II to better support the UK after Brexit.
HM Treasury has now published a ‘Call for Evidence’ as the first part of its review. The Call for Evidence states that the review may present an opportunity to better balance the current prescriptive and rules-based model with a mixture of judgement and rules which might align more closely with the Prudential Regulation Authority (PRA) approach to supervision.
The areas for review include:
• The Risk margin
• The matching adjustment
• Calculation of the Solvency Capital Requirement (SCR)
• Calculation of the consolidated SCR using multiple internal models
• Calculation of the Transitional Measure on Technical Provisions
• Reporting Requirements
• Branch capital requirements for foreign insurance firms
• Thresholds for regulation by the PRA under Solvency II
• Mobilisation of new insurance firms
• Risk-free rates: transition from LIBOR to Overnight Indexed Swap rates
The Call for Evidence also asks whether there are additional areas that should be included in the review.
Responses should be submitted by 19 February 2021.