"Much could be changed domestically in the short-term – still within the framework of Solvency II, and without the need to make changes to the EU-level text."
The Association of British Insurers says Solvency II is broadly fit-for-purpose for the UK market and there is no appetite from its members to withdraw from or completely replace it.
Following more than ten years of implementation, costing more than £3bn or equivalent to £140 per insured household, the ABI argues the focus should instead be on making changes that would help customers, support investment in infrastructure to grow the economy, and ensure the UK remains globally competitive and a leader in the insurance market.
The ABI has proposed a number of changes to Solvency II to be reflected in the future UK regime, including removing barriers to long-term investments and reducing "excessive" reporting requirements.
The Association also believe its size and sensitivity to interest rate movements are "both significantly higher than expected and reflect unintended consequences of its design".
This, it argues, makes the writing of new business, in particular annuities and other long-term guarantee-based products, unattractive to firms, and makes these products less affordable for customers.
To avoid insurers being stuck in "regulatory limbo" when hte UK leaves the EU, the ABI proposes that Government adopts the EU Solvency II text directly into UK law following Brexit, and supports the Prime Minister’s proposal for a Great Repeal Bill.
The ABI also says it is imperative that changes made to Solvency II and any replacement UK prudential regulatory regime should be supportive of UK competiveness, to ensure the UK retains insurance business and enhances it global position in the insurance sector following Brexit.
ABI’s Director of Regulation, Hugh Savill, said: “Solvency II has been part of the UK regulatory landscape and on UK insurers’ radars for almost a decade. Dismantling this regulation so soon after implementation means considerable time and money spent would have been wasted.
“We believe much could be changed domestically in the short-term – still within the framework of Solvency II, and without the need to make changes to the EU-level text. This could be done now, is not contingent on leaving the EU, and would not affect the UK’s ability to seek equivalence at a later point.”
