The Prudential Regulation Authority (PRA) is consulting on a major set of reforms to Solvency II with the aim of creating a new UK regulatory regime for insurance firms, known as Solvency UK, which is better adapted to the UK insurance market.
The proposals include further streamlining of reporting requirements for all firms while substantially simplifying and improving the flexibility in the assessment of internal models. They will allow new entrants into the UK insurance market by easing their entry and simplifying the regulation of international insurers operating through branches.
Sam Woods, CEO of the PRA commented, “These measures will reduce bureaucracy, facilitate competition, and support UK economic growth and competitiveness without lowering prudential standards or weakening policyholder protection.”
The PRA’s reforms are designed to accomplish certain goals one of which is to eliminate onerous requirements. This will be streamlining reporting requirements to reduce administrative burdens on insurers.
While building on previous reporting reforms already implemented by the PRA, will simplify the calculation process for the transitional measure on technical provisions (TMTP) to reduce costs and complexity.
By moving towards a more principles-based approach to assessing firms’ internal models, thereby reducing significantly the number of detailed requirements that firms must meet. The proposals will also allow more flexibility in the calculation of group capital requirements and will apply proportionality by increasing the size thresholds at which small insurers are required to enter the Solvency UK regime.
The PRA aims to encourage entry and building competition by introducing a ‘mobilisation’ regime which will allow newly authorised insurers more flexibility as they set up in the UK, as well as by raising the thresholds above which Solvency UK will apply.
Removing certain requirements for branches of international insurers operating in the UK, increasing competition in the market.
These reforms form part of a wider package which will be implemented through a combination of government legislation and PRA rule changes. In line with the government’s legislative plans, some reforms are expected to be implemented by the end of this year, and the remainder in 2024.
