On 29 June 2023, the Prudential Regulation Authority (PRA) published consultation paper (CP12/23). CP12/23 is the latest in a number of consultation papers issued by HM Treasury (HMT), the Bank of England (BoE) and the PRA as part of proposals to reform Solvency II. The government’s stated intention of these reforms is to take advantage of the new ability to diverge from EU law to adapt Solvency II requirements to make the UK insurance market more competitive and dynamic. The new regime is intended to be called “Solvency UK”.

In the paper the PRA sets out a number of proposals which are intended to simplify some existing Solvency II requirements, to give it and firms greater flexibility, to encourage more new firms to enter the UK insurance market and to reduce the administrative and reporting burdens on firms.


Following the UK’s departure from the EU, the UK government made reviewing Solvency II a priority as it identified the ability to diverge from Solvency II as a potential ‘Brexit benefit’.

Over the last two years, HMT, the BoE and the PRA have been consulting on potential changes to Solvency II (including HMT’s paper published on 22 June 2023 setting out draft statutory instruments and proposed amendments). Their intention has been to identify ways of changing Solvency II to make the UK insurance market more competitive and dynamic, while not compromising policyholder protection.

CP12/23 represents the latest regulatory review supplementing the HMT paper which proposed changes to the rulebook and supervisory statements.


The key amendments the PRA is proposing in the paper are to:

  • amend the existing regime for transitional measures on technical provisions (TMTP);
  • amend the requirements and process for approving Internal Models (IMs);
  • increase the thresholds for application of Solvency II / Solvency UK to firms;
  • create a new “mobilisation” regime for new UK insurers;
  • make amendments to the solvency and reporting requirements for third country branches; and
  • rationalise and remove some reporting and disclosure requirements.


TMTP was intended to smooth the financial impact for firms of the transition from the previous Solvency I regime to Solvency II. The provisions allow firms to apply temporary reductions to the amount of technical provisions for business written before 2016, and increase available capital (subject to PRA approval). However, the ability to use TMTP  is due to end in 2032. In the paper the PRA has proposed changes to make calculating TMTP less burdensome for firms and to try and prepare firms for the end of TMTP in 2032 to avoid a “cliff edge” effect.

Their main proposal is to introduce a simplified new default method for calculating the TMTP – the “new model”. Under the new model TMTP would only need to be calculated by reference to the firm’s Solvency II risk margin and best estimate liabilities, rather than by reference to both Solvency I and Solvency II measures. The idea is to streamline the calculations so they are simpler for firms to complete and for the PRA to approve.

Firms will be able to continue to use the “old model” for calculating TMTP if the “new model” creates materially different results than the existing approach, but they will be required to apply to the PRA to use the “old model”.

The PRA has also proposed a number of more detailed changes to TMTP including:

  • removing the financial resource requirement (FRR) test;
  • introducing more consistent requirements for firms to amortise TMTP in the lead up to 2032;
  • allowing firms to recalculate their TMTP on the final day of their reporting period and removing the requirement for TMTP recalculations to be approved by the PRA;
  • removing audit committee oversight of TMTP and making it the responsibility of Chief Actuaries;
  • limiting the approval of new TMTP permissions including in relation to insurance business transfers and 100% reinsurance transactions; and
  • removing the ability of third country branches to use TMTP.

Notwithstanding the PRA’s aim of reducing resourcing overheads, through this process of simplification, it recognises that there will be some upfront costs and actions for firms in changing and adapting to the new calculations for TMTP.

Internal Models

The PRA also proposes amendments to the requirements and process for the approval of IMs. The PRA had identified that the tests and standards (T&S) approach under Solvency II, where all requirements strictly had to be met for an IM to be approved, was too binary and the lack of flexibility created difficulty for firms and the PRA in approving appropriate IMs.

The PRA has proposed moving away from a T&S approach towards a principle based model. The idea is to give firms flexibility as to how they meet the principles and also to give the PRA the ability to approve IMs even where all strict requirements are not met. To address circumstances where a proposed IM does not meet all requirements, it is proposing to implement two new types of supporting safeguards through the ability to apply Capital Add Ons.

The PRA has also proposed amendments to its supervisory review process of IMs, which will be adapted to reflect the other changes it is proposing.

Third Country Branches

The PRA proposes:

  • to remove the requirements to calculate and report third-country branch capital requirements i.e. those rules that require international insurers operating in the UK through a branch presence to calculate the branch solvency capital requirement (branch SCR) and the branch minimum capital requirement (branch MCR); and
  • to remove the SCR localisation requirement for third-country branches (i.e. the rules relating to the requirement to hold assets in the UK to cover the branch SCR) and to report branch risk margin.

These changes are designed to reflect the common understanding that a third country branch cannot fail independently of its wider legal entity. For this reason the PRA’s position is that branch level calculations do not add to policyholder protection. In addition, responses to HMT’s Call for Evidence in their review of Solvency II suggested that such changes would make the UK more attractive to new business, boost competition and bolster the UK’s reputation as a global insurance hub.

Mobilisation Regime

In a bid to make it easier for new insurers to enter the UK insurance market, the PRA paper proposes to create a UK insurance mobilisation regime. Under the proposals, mobilisation would be an optional stage of up to 12 months, beginning at the point of authorisation, where a newly authorised firm would operate with business restrictions, in return for proportionate regulatory requirements, including a reduction of the absolute floor to the MCR to £1 million for mobilisation firms.

The PRA’s proposed starting position is that firms should be limited to effecting contracts of insurance, such that: (1) the firm’s total net exposure remains below an aggregate sum insured of £50,000; (2) the contracts are short-term, with a maximum policy limit of two years; and (3) the policies are on a ‘claims-made’ basis only (i.e. no liability insurance, large or long-tail business).

The intention of the PRA is to give new firms the certainty that they will be authorised to enable them to finalise hiring staff and raising capital during the mobilisation period.

Whether using the new mobilisation regime would be attractive to new insurers in practice is to be seen. The extent of the limits on the business that would be placed on new insurers using the mobilisation regime may mean it is only of interest to new entrants in a limited number of circumstances. Alternative models for entering the UK market, such as initially setting up as a managing general agent in the UK, may remain popular as alternatives to this new regime.


The PRA proposes to increase the Solvency II Gross Written Premium (GWP) threshold from €5 million to £15 million; and the firm and group technical provisions from €25 million to £50 million. Any firms below these thresholds will be non-directive firms. Whilst these increases represent a significant change to current thresholds, it is expected that the proposals will impact nine current Solvency II firms. Notwithstanding this, new and existing firms that do not exceed the proposed thresholds would continue to be able to apply for a voluntary requirement (VREQ) to operate within the Solvency II regime, if preferred. This is particularly important where firms do not wish to invest in adapting to a different regulatory regime.

Reporting and Disclosure

The proposed changes seek to improve the efficiency of reporting for firms and the relevance of reported data in advancing the PRA’s objectives. CP12/23 sets out proposals to remove the requirement for all Solvency II firms, including third country branches to submit the regular supervisory report (RSR); and the requirements for third country branches to report a range of templates relevant to branch capital requirements, the branch risk margin and the localisation of assets to cover the branch SCR.

Other changes

The paper also addresses the redenomination of monetary values within the Solvency II firms Sector of the PRA Rulebook from Euro to GBP and includes measures intended to increase flexibility as to how firms calculate group SCR in certain circumstances.

The proposed methodology for redenomination uses the average daily GBP/EUR spot exchange rate covering the 12-month period prior to 31 December 2020, rounded to two decimal places, with the resulting GBP values rounded to two significant figures.

Risk Margin

Although the Government has announced proposals to reduce the risk margin by around 65% for long-term life insurance business and 30% for non-life business, CP12/23 does not address risk margin. These changes will be effected through the Commission Delegated Regulation (EU) 2015/35 (SII CDR) and firms should look to HMT’s SIs for revised formulae and parameters, together with the implementation timeline.


The consultation period is split into two. It closes on Friday 1 September 2023 for proposals in Chapters 2 to 10 and closes on Monday 31 July 2023 for proposals in Chapter 11 (which contains minor administrative amendments to the PRA rules as a consequence of HMT’s proposed reforms to the Solvency II risk margin).

Next Steps

These reforms form part of a wider package which will be implemented through a combination of government legislation and PRA rule changes. In line with the government’s legislative plans, some reforms are expected to be implemented by the end of this year, and the remainder in 2024.

Beyond this consultation, the PRA expects to consult separately in September 2023 on reforms for life insurers relating to investment flexibility and the matching adjustment (MA).

There will be a phased implementation of the reforms in respect of the risk margin (RM), MA, and other areas. Regarding the RM, the PRA is taking the necessary steps to align the PRA Rulebook with the implementation of HMT’s RM reforms by 31 December 2023. Subsequently, the PRA is planning to have final policy in place on the MA to enable implementation of HMT’s MA provisions by the end of June 2024, with all other changes taking effect on 31 December 2024. Implementation of the MA provisions in June would mean that life insurance firms will be able to take advantage of these specific investment-related reforms in advance of 31 December 2024.

To find out more or to discuss any of the implications of the proposals, please contact our insurance team.

Maria Ross, Ben Hilary and Clare Douglas