PRA published a report on its response to the inquiry of the Treasury Committee into Solvency II. PRA agrees with the Treasury Committee on the importance of fostering and maintaining a strong, effective, and open dialog between the regulator and the industry. In October 2017, the Treasury Committee issued a report titled “The Solvency II Directive and its Impact on the UK Insurance Industry.” In January 2018, Sam Woods, Deputy Governor for Prudential Regulation, set out his initial thoughts on the recommendations of the report. As requested by the Treasury Committee, PRA is providing further details on the areas discussed.
The report is split into four parts. Part 1 gives an overview of the UK insurance industry and sets out the rationale for the prudential regulation of insurers. Part 2 discusses the design of Solvency II, how it differs from the previous prudential regime for insurers in the UK, and the impact Solvency II has had on insurers since it came into force. Part 3 discusses the recommendation of the Treasury Committee in respect of the secondary competition objective, along with the points raised by the Treasury Committee about the engagement of PRA with industry and its skills and experience in insurance. Part 4 includes response to the policy recommendations made in the report of the Treasury Committee, along with an update on the further developments on other policy issues raised by the Association of British Insurers during the Treasury Committee’s inquiry.
PRA has limited scope to change Solvency II due to its detailed, rules-based nature. However, PRA is committed to making improvements to the implementation of Solvency II, where appropriate and where it has discretion to do so. There is a lot of common ground between the Treasury Committee, the industry, and PRA about aspects of Solvency II that do not work well. In this paper, PRA considered the Treasury Committee recommendations on specific policy issues and set out its responses, along with the actions taken to address the points raised.
Keywords: Europe, UK, Insurance, Solvency II, Response to Recommendations, PRA
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