The UK Government has committed to making “substantial legislative progress” over the course of 2023 on repealing and replacing EU-era Solvency II, in an effort to unlock over £100 billion of private investment for productive assets such as UK infrastructure.
Speaking at an industry roundtable in Edinburgh this week, Chancellor of the Exchequer Jeremy Hunt unveiled over 30 financial services regulatory reforms designed to help boost investment and growth across the UK.
He set out plans to repeal, and replace, hundreds of pages of EU laws governing financial services that have so far been retained since the UK left the European Union, including the Solvency II rules that govern re/insurers’ balance sheets.
The Chancellor has previously indicated that he would push to reform many of the rule around Solvency II, in a move that has been broadly welcomed by figures in the re/insurance industry.
“We are committed to securing the UK’s status as one of the most open, dynamic and competitive financial services hubs in the world,” said Hunt. “The Edinburgh Reforms seize on our Brexit freedoms to deliver an agile and home-grown regulatory regime that works in the interest of British people and our businesses.”
“And we will go further – delivering reform of burdensome EU laws that choke off growth in other industries such as digital technology and life sciences,” he added.
Economic Secretary to the Treasury, Andrew Griffith, also commented: “The UK is a financial services superpower – and we have long benefited from, and are committed to, high quality regulatory standards … Our reforms deliver smarter regulation of financial services that will unlock growth and opportunity in towns and cities across the UK.”
“The work to repeal, and where appropriate replace, retained EU law governing the sector has been guided by industry – and split into two initial tranches,” he explained. “These will focus on delivering reform to areas which provide the most significant boost to UK growth and competitiveness, and we will set out further detail on future tranches over time.”
The Chancellor has also issued new remit letters to the Financial Conduct Authority and Prudential Regulation Authority emphasising the new secondary competitiveness objectives and encouraging them to facilitate, subject to aligning with relevant international standards, the international competitiveness of the UK economy and its growth in the medium to long term.
S&P has suggested that the proposed changes to Solvency II are likely to be neutral for the creditworthiness of rated insurers in the UK as it expects them to broadly maintain their capital positions, while AM Best says they could allow life insurers to invest in a wider array of assets, and likely lead to a higher proportion of UK-based assets underpinning the UK annuity portfolio.
But analysts at Aon have stressed that any potential impact will be realised through a gradual process rather than an observable one as insurers change behaviours and optimise strategies.
