Both the implementation and adoption of Solvency II regulation has been expensive for insurers and reinsurers, and proposed amendments to the implementation process by the Prudential Regulation Authority (PRA) could drive costs even higher, despite potentially simplifying the process.
The PRA has released the first of its series of consultation papers on reforming the implementation process of Europe’s Solvency II regulation, which came into effect on January 1st, 2016. The implementation process has been extremely expensive for insurance and reinsurance companies, and changes to the implementation phase could mean higher costs for re/insurers.
While reforms could see companies have to change internal models and similar, which would come at a cost, reforms put forward by the PRA could also make it easier to manage the reporting in the future.
Sam Woods, Deputy Governor for Prudential Regulation, commented; “We have now had 21 months’ experience of operating the new Solvency II regime. In light of that experience, we have identified a number of areas where we can improve our implementation, and are today publishing our first set of proposals.”
The first of the PRA’s consultation papers concerns the Matching Adjustment (MA), which cushions the capital resources of certain life insurers, subject to conditions and prior approval.
Specifically, the paper offers guidance on the eligibility of assets for the MA, and also offers improved clarity on the PRA’s expectations for companies in relation to the application of MA.
Ultimately, the PRA’s series of consultation papers are designed to better the implementation process of certain parts of Solvency II regulation, however, at what cost any changes will be to insurers and reinsurers remains to be seen.
