The Insurance and Reinsurance Undertakings (Prudential Requirements) (Risk Margin) Regulations 2023: RPC Opinion (Red-rated)
Regulatory Policy Committee opinion on HMT's Solvency II Reform IA
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The proposals seek to make changes to key features of the Solvency II framework, to free up capital and remove barriers, which disincentivise UK insurance firms from investing in long-term productive assets.
This opinion covers the IA for the Solvency II reforms.
The RPC found that the IA is not-fit-for-purpose and, therefore, red-rated it. Our opinion was issued to HMT on 7 December 2023. The Government made the instrument on 7 December, and laid it before Parliament on 8 December and including publishing the IA alongside. In line with the RPC’s publishing policy we now publish our opinion.
Initially, the IA received an initial review notice from the RPC. The amended IA, as published, has addressed the issues affecting the SaMBA, clearly stating that insurance firms with asset values below €50 million, would not be impacted by the reforms to matching adjustment and reduction in risk margin. However, the EANDCB is still insufficiently substantiated. Some of the main impacts included do not have sufficient supporting discussion to justify them being classified as direct impacts, e.g., the annual £300 million reduction in premium payments. There also appears to be an over-reliance on KPMG’s study. Much of the figures underpinning the EANDCB have not only been drawn from this single study but the calculations to arrive at the figures are also not adequately explained or justified.
As is our normal practice, the opinion also offer comments on how we think other aspects of the IA might be improved.