The UK’s insurance industry has given the biggest hint yet that it will push for changes to the Solvency II capital rules following Britain’s vote to leave the EU.
Solvency II, introduced at the start of the year, was designed to harmonise insurance regulation across the EU. But some of the rules have raised the hackles of the UK’s big insurers, which complain that they make it more difficult for them to do business.
In a new submission to the UK government, the Association of British Insurers has called for a regulatory environment that “is appropriate for the UK market”.
“There are certainly changes to Solvency II that could be made,” ABI chief executive Huw Evans told the Financial Times. “There’s an opportunity to improve it in the UK.”
One of the most contentious areas is the so-called risk margin, which is in effect an extra layer for capital that has to be held for some types of long-term business. Mr Evans also said there could be changes to the Prudential Regulation Authority’s reporting requirements, which he said were “pretty onerous”.
However, he added there was unlikely to be a wholesale rewriting of the rule book. “It makes no sense to tear up Solvency II completely and saddle the industry with hundreds of millions of pounds of unimplementation costs on top of the £4bn implementation costs.”
The ABI is also concerned about the prospect of the UK losing its seat at the negotiating table when it comes to future changes to Solvency II.
Although the UK might be free to create its own rules post-Brexit, insurers warn that the new regime would have to have “equivalence” with EU rules, so the future shape of Solvency II will have a bearing on how UK insurers operate.
“As the largest sector in Europe, it is not feasible to be in a position where we have no say on how we are regulated,” said Mr Evans.
London’s insurers rush to cover the Brexit bases
Industry is wary of losing ‘passporting’ rights but confident it will adapt
Possible changes to Solvency II have already attracted interest elsewhere. Earlier this month, parliament’s Treasury select committee launched an inquiry into how the regime would operate in the UK after Brexit.
The ABI’s submission also focuses on the need, post-Brexit, to maintain common rules on how companies use data. “The data point has had the least air time,” said Mr Evans. “The key thing is to ensure that we don’t have our own data regime. That would be terrible . . . it has the potential to be a massive disruptive effect.”
Among the other points that the ABI raised with the government was a desire to maintain passporting rules, which the insurance industry uses extensively, and the need for a migration regime that will allow the industry to recruit skilled staff from around the world.