Insurance sector also identified as ‘priority’ for Brexit negotiations

A detailed and wide-ranging report into insurance regulation by the Treasury Select Committee has called for an overhaul of the UK implementation of Solvency II, the prudential regulatory regime for insurance. It also calls for HM Treasury to review the Prudential Regulation Authority’s (PRA’s) objectives to include a primary competition objective.

Reviewing the impact of Brexit, the Treasury Select Committee (TSC) calls for the insurance sector to be treated as a priority sector during the Article 50 negotiations with ‘urgent’ solutions for pre-Brexit cross-border contracts and an ambition for a bespoke reciprocal agreement with the EU.

The ABI submitted two reports to the committee and gave oral evidence.

Huw Evans, Director General of the ABI, said:

“This is an important report which urges sensible reform so that the UK’s world-leading insurance sector can operate effectively to serve customers, business and the wider economy. Our sector has a vital role in helping Britain thrive following Brexit while continuing to be a major employer, tax contributor and provider of security to millions of individuals and businesses. We can only do this if we have a well-balanced regulatory system with pragmatic implementation of the Solvency II regime. We welcome the Treasury Select Committee’s detailed focus on pragmatic improvements and will continue to work constructively with the PRA to implement change, which will need to go beyond proposals the regulator announced earlier this week.”

Commenting on the TSC’s call for the insurance sector to be treated as a priority sector during Article 50 negotiations, Huw Evans added:

“The committee is right to recognise the importance of successful Brexit negotiations for our world-leading insurance sector which serves millions of individual and business customers across the EU. It is vital politicians allow regulators to agree a process to handle pre-Brexit contracts and that the PRA is allowed to help EEA businesses operating in the UK have certainty on their regulatory status after March 2019. These are technical issues which have real-world consequences for millions of customers if they are not fixed.”

Among the ABI’s recommendations which are highlighted for further action by the Government or the PRA are:

• It is recommended that the PRA should have a “primary competition objective… to carry as much weight as its solvency objective”, and that the Treasury should “immediately review” this.
• The report also finds the PRA’s implementation has had a “disproportionate impact on… the [UK] industry globally”, reducing our global competitiveness.
• It is recommended that reporting requirements are “streamlined” to reduce the “burden and cost on firms” as well as the risk that the PRA “could miss something”.  The PRA is asked to “review the information collected – both in the EIOPA and national templates”.
• A “solution for the risk margin” is required to correct problems with its sensitivity to interest rates and excessive size, and the PRA is asked to “take action now, irrespective of the [EU] review process”.
• There is backing for “more pragmatic rules” and “more flexibility” in the PRA’s approach to the Matching Adjustment,  as the Committee is concerned that the current approach “makes it harder for [insurers] to invest in long-term… assets such as infrastructure and equity release mortgages”, and this is also “leading to poor value for customers”.
• The PRA is urged to look again at the 23 recommendations the ABI made to improve the UK implementation of Solvency II – asking to see “substantive progress” on the five where the PRA agreed and, for PRA to “take a fresh look” at the 18 they have so far dismissed.

(all citations are from the Conclusions and Recommendations of the Committee’s full report, pages 53 – 58.)

 

-ENDS-

 

Notes for Editors

 

The PRA outlined proposals for changes to Solvency II on Wednesday 25th October. The ABI’s response to these is here.

 

1. Enquiries to:
Malcolm Tarling                        020 7216 7410    Mobile: 07776 147667
Lauren Gow                              020 7216 7327    Mobile: 07889 641702
Sarah Cordey                            020 7216 7375    Mobile: 07860 189071

 

2. The Association of British Insurers is the voice of the UK’s world leading insurance and long-term savings industry.

A productive, inclusive and thriving sector, we are an industry that provides peace of mind to households and businesses across the UK and powers the growth of local and regional economies by enabling trade, risk taking, investment and innovation.

 

3. An ISDN line is available for broadcast

 

4. More news and information from the ABI is available on our web site, www.abi.org.uk.