UK gov puts forward Solvency II reform package for consultation

The UK government has published its consultation on Solvency II reforms in a bid to free up billions of pounds of investment and boost its insurance market’s competitiveness.

Much like the EU’s current reforms of Solvency II, the UK government is taking the opportunity to try and reduce the amount of money insurers have to hold and make it easier for them to invest in green and other infrastructure projects.

The UK said its proposals for the capital adequacy regime in the consultation, which will run for 12 weeks to 21 July, would “unlock” tens of billions pounds of investment. The government said the changes would also cut red tape while maintaining policyholder protection.

The UK government has put a forward a 60%-70% reduction in the risk margin for long-term life insurers, and is consulting on the appropriate level for general insurers within its Solvency II reform package. The simple aim is to release capital on insurers’ balance sheets.

The proposals also aim to grant easier access to the UK insurance market for new insurers.

The reforms plan to “significantly” increase flexibility to allow insurers to invest in long-term assets such as infrastructure and deliver a reduction in the current reporting and administrative burden on firms, the government said. This includes doubling the thresholds for insurers that fall under Solvency II.

The proposals also contain a more sensitive treatment of credit risk in the matching adjustment, to boost the availability of long-term life insurance products.

The UK government will publish a response to the consultation once it has finished. The Prudential Regulation Authority will also publish its own consultation on Solvency II reforms at some point.

“The proposals outlined today form part of wider changes proposed by HM Treasury to the UK’s financial services regulatory framework, so that we maintain a coherent, agile and internationally respected approach to financial services regulation that is right for the UK,” said economic secretary to the Treasury John Glen.

He said the reforms would free up “tens of billions of pounds of investment in the UK economy, spur innovation in the market while protecting policyholders, and will cement the UK’s position as a global hub for financial services”.