Featured Product

    HM Treasury Seeks Views on Review of Solvency II Regime for Insurers

    October 19, 2020

    HM Treasury issued a call for evidence seeking views to reform the prudential regulatory regime—also known as Solvency II—of the insurance sector in UK. The review addresses potential areas for reform of Solvency II that could not only improve the efficiency and effectiveness of the application of the UK prudential regulatory regime, but also allow it to better recognize the unique features of the UK insurance sector. Views are also sought on how this regime can contribute to the climate change objectives of UK government. This call for evidence is the first stage of the review of Solvency II, which will also be informed by recent international prudential regulatory developments. The feedback period on this review of Solvency II ends on January 19, 2021. In a separate statement, HM Treasury highlighted that FCA has outlined a timeframe to align its climate risk reporting requirements with those proposed in the Pension Schemes Bill, with the Pensions Minister Guy Opperman welcoming the plans to usher in the landmark climate risk reporting measures in 2022.

    The review of Solvency II will consider how the current prudential regulatory framework can be improved to ensure that it provides for an appropriate amount of capital for the insurance sector, for a high degree of policyholder protection, and for suitable standards of governance, risk management, and transparency. The government is seeking responses in the following key areas:

    • Risk margin—The risk margin is an additional resource that an insurance firm is required to hold on its balance sheet. The government and PRA support the objective underpinning the risk margin and the protection that it provides to policyholders over and above other provisions in Solvency II. The government seeks views on the preferred way to reform the risk margin in UK.
    • Matching adjustment—The government seeks views on whether the matching adjustment is operating optimally, including the criteria used to determine the eligibility of assets and liabilities. Moreover, the government seeks views on the role that the matching adjustment could play to better support delivery of its climate, "leveling up" and long-term investment objectives, including in appropriate infrastructure or other long-term productive assets. It also seeks views on the application processes for the use of the matching adjustment.
    • Calculation of the solvency capital requirement (SCR)—The size, and calculation, of SCR is a critical part of Solvency II. The government seeks views on whether the current approach can be made less prescriptive, less complex, and increase the ability of regulators to apply supervisory judgment. In addition, the government seeks views on the role that the determination of the SCR can play to support insurance firms to deliver long-term capital to support growth, including to invest in infrastructure, venture capital and growth equity, and other long-term productive assets. The government also seeks views on the role that the determination of the SCR could play to support delivery of its climate change objectives, the delivery of its Green Finance Strategy, and address the risks posed by exposure to "stranded assets."
    • Calculation of consolidated group SCR using multiple internal models—Particular rules for the calculation of SCR apply at the level of an insurance group. The government seeks views on the calculation of this group SCR, including circumstances in which the use of multiple internal models may be appropriate.
    • Calculation of transitional measure on technical provisions—The transitional measure on technical provisions enables insurance firms to apply a transitional deduction to the value of their insurance liabilities in certain circumstances. The government seeks views on whether the provisions for the calculation of the transitional measure on technical provisions could be improved.
    • Reporting requirements—The government seeks views on whether the reporting requirements for insurance firms are appropriate and deliver benefits that are proportionate to the costs of the preparation of the reports that are required. For example, reporting requirements could be reduced though the extension of eligibility for existing reporting waivers to cover a larger proportion of the insurance sector or the removal of some reporting requirements. Other possible changes could result in alterations or additions to the existing templates or to formalize the existing ad hoc requests.
    • Branch capital requirements for foreign insurance firms—The government seeks views on whether the requirements for UK branches of foreign insurance firms are operating optimally and whether reforms are required, in line with the objectives of this review.
    • Thresholds for regulation by PRA under Solvency II—The government seeks views on the scope of application of Solvency II in relation to small insurance firms. The Government seeks views on the appropriate size, and breadth, of insurance firms regulated under Solvency II.
    • Mobilization of new insurance firms—The government seeks views on the mobilization of new insurance firms, including whether the current regimes contain barriers to new insurance firms
    • Transition from LIBOR to Overnight Indexed Swap (OIS) rates—The government seeks views on any issues arising for insurance firms from the forthcoming switch from LIBOR to Overnight Indexed Swap rates. The government and PRA aim to give certainty to insurance firms as soon as possible on any issues arising from the forthcoming switch from LIBOR to Overnight Indexed Swap rates, including in relation to timing and application of the Credit Risk Adjustment. PRA plans to consult on various aspects of the transition later in 2020.

     

    Related Links

    Comment Due Date: January 19, 2021

    Keywords: Europe, UK, Insurance, Pensions, Solvency II, Solvency II Review, Reporting, SCR, LIBOR, Interest Rate Benchmarks, Climate Change Risk, ESG, Internal Model Approach, PRA, FCA, HM Treasury

    Featured Experts
    Related Articles
    News

    HKMA Enhances Loan Guarantee Scheme to Alleviate Pressure on SMEs

    HKMA announced that enhancements will be made to the Special 100% Loan Guarantee of the SME Financing Guarantee Scheme (SFGS) and the application period will be extended to December 31, 2021.

    February 24, 2021 WebPage Regulatory News
    News

    BoE Sets Out Plan to Transform Data Collection from Financial Sector

    BoE has set out a three-phased plan to transform data collection from the UK financial sector over the next decade.

    February 23, 2021 WebPage Regulatory News
    News

    BIS Issues Updates on Technology Initiatives on Cross-Border Payments

    BIS recently made a couple of announcements with respect to the planned and ongoing work in the area of financial technology.

    February 23, 2021 WebPage Regulatory News
    News

    ESRB Updates List of Macro-Prudential Measures in February 2021

    ESRB updated the list of national macro-prudential measures applied by each member state in the European Economic Area.

    February 22, 2021 WebPage Regulatory News
    News

    BoE Survey Shows Positive COVID Impact on Outsourced Banking Services

    BoE has set out results of a survey on the impact of COVID-19 events on the use of machine learning and data science.

    February 22, 2021 WebPage Regulatory News
    News

    ECB Issues Opinion on Proposal to Regulate Crypto-Asset Markets in EU

    In response to a request from the European Council and Parliament, ECB published an opinion on the proposed regulation on markets in crypto-assets.

    February 22, 2021 WebPage Regulatory News
    News

    APRA Announces Aggregate Committed Liquidity Facility for Banks

    APRA announced the updated aggregate amounts for the 2021 Committed Liquidity Facility (CLF) established between the Reserve Bank of Australia (RBA) and certain locally incorporated authorized deposit-taking institutions that are subject to the Liquidity Coverage Ratio (LCR).

    February 19, 2021 WebPage Regulatory News
    News

    ECB and UK Authorities Agree on Post-Brexit Supervisory Cooperation

    ECB published supervisory Memorandums of Understanding (MoUs) with UK as well as other European and non-European authorities.

    February 19, 2021 WebPage Regulatory News
    News

    EIOPA Outlines Strategic Supervisory Priorities for Insurance Sector

    EIOPA identified business model sustainability and adequate product design as the two EU-wide strategic supervisory priorities.

    February 19, 2021 WebPage Regulatory News
    News

    US Agencies to Revise FFIEC 031, FFIEC 041, and FFIEC 051 Reports

    After considering comments received on the November 2020 proposal, US Agencies (FDIC, FED and OCC) are proceeding with the proposed revisions to the reporting forms and instructions for Call Reports FFIEC 031, FFIEC 041, and FFIEC 051.

    February 19, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6618