Continuity, change and divergence in a post-Brexit world
Of the many far-reaching questions raised by the UK’s decision to leave the EU, foremost for the insurance sector is whether, and how far, the UK will stick to the current Solvency II framework once it is out of the EU. A further parallel and pressing question is how the Solvency II regime may change or develop in Europe following the withdrawal of UK influence from EU decision-making fora.
This report sets out to consider these questions, identifying broad directions of travel as well as the individual reforms we think most likely to emerge in both the UK and EU.
The potential reform priorities and activities of the Prudential Regulation Authority are the central focus of the report, considered within the context, and potential constraints, of the following two factors:
- Potential future scenarios within which the insurance regulatory framework may evolve in the UK, recognising that insurance regulation is just one part of the UK government’s future overall approach to financial services regulation.
- Areas of substantive policy debate in the run-up to Solvency II and subsequently, and the perspectives of UK and European Union 27 (EU27) authorities and regulators on these issues, including the recommendations made by the UK Treasury Committee.
In this report, we discuss the views of UK and EU27 regulators, policymakers and industry participants on the following areas of Solvency II, and consider the pressures that may come to bear for adjustment or reform in each of these areas:
- Risk margin
- Long term guarantee measures
- Regulatory reporting and public disclosure
- Internal models
- Role and powers of EIOPA
- Capital, including standard formula methodology and calibration
- Loss-absorbing capacity of deferred taxes
- Environmental, social and governance factors
- Macroprudential features of Solvency II, including recovery and resolution framework
- Cross-sector consistency in regulation and supervision
- Transitional measures
In the context of the substantial uncertainty on these issues, we expect the analysis in this report will be useful for UK and EU27 insurers carrying out post-Brexit scenario planning.