UK insurers uncertain over Solvency II reform timeline

The UK government said this week it will introduce secondary legislation to make changes to Solvency II measures for UK insurers, but did not set out a timeline for reform. Delivering his Autumn Statement yesterday, Chancellor Jeremy Hunt repeated a pledge from last year’s statement to introduce legislative changes, which have been on the cards since the UK left the European Union.

Ross Evans, partner, life insurance at PwC UK, said the government had previously set a date of 31 December 2023 to implement key changes to the risk margin, which will free up capital from insurers’ balance sheets, and other measures.

“While the government has reaffirmed its plans to legislate for the Solvency II reforms, insurers will be left wondering when these changes will be enacted into law,” Evans said. “The lack of specificity on timing will increase uncertainty within the insurance industry on whether these changes will be enacted this year.”

Nick Ford, partner, insurance and financial services at Hymans Roberts, called for simplicity in Solvency II reform.

“The government is committed to the Solvency II reforms that are intended to drive infrastructure investments from insurers and simplify the regulatory regime.

“Although the ongoing consultation may go some way to opening up additional investment, this currently appears to be at the expense of simplicity. It is also not clear if the current consultation goes far enough to achieve the government’s objectives.”

Hunt said the reforms should unlock £100bn of investment from the industry in productive assets, such as infrastructure.

“The government is legislating to give effect to the Solvency II reforms to deliver a more tailored, clearer and simpler regulatory regime for the insurance sector, and incentivising private investment in long-term productive assets,” he said, without confirming a timeline.

Evans said impact of the reforms is yet to be seen, and also depends on the outcome of the Prudential Regulation Authority’s consultation on the matching adjustment used in Solvency II, following a consultation launched in September.