Planned post-Brexit reforms to the U.K.'s insurance regime should focus on the benefits to the country's industry and not explicitly target equivalence with the EU's Solvency II capital rules, according to panelists at a recent industry conference.
The U.K.'s Treasury issued a call for evidence on possible changes to the country's implementation of the Solvency II regime in October 2020, to which the industry had until Feb. 19 to respond. While regulators and insurers have said they still support Solvency II's principles and hope to tweak the U.K.'s version rather than overhaul it, there are some concerns that changes could prevent the EU from declaring the resulting U.K. regime equivalent.
Julian Adams, director of public policy and regulation at M&G PLC told the Association of British Insurers annual conference that the priority should be to ensure the changes create a regime that is fit for purpose, offers security to policyholders, eschews pro-cyclicality and suits the specific features of the U.K. insurance market, "rather than to focus on equivalence per se." The focus ought to be on "getting it right for the U.K.," he said.
Adams also said that equivalence so far had focused on inputs to a regime rather than the results it delivers. "If we persist in that, it is going to be very difficult to make progress," he said, adding that his "strong urge" to policyholders was to focus on outputs of a regime rather than its inputs.
Speaking on the same panel, Gwyneth Nurse, the Treasury's director of financial services, said getting the best outcome for U.K. insurers from the planned reforms is "very much a priority for us," but that does not necessarily prejudice the equivalence position.
"You can achieve equivalent regulatory outcomes in different ways and through different legal frameworks," she said.
Nurse added that the Treasury was also mindful of other insurance regimes, such as the International Capital Standard, and that the Treasury wanted the U.K. to be "best in class" and attract insurance companies to the country.
Hugh Francis, director of external reporting developments at Aviva PLC, said that there was a "strong unanimity to push for change" in areas of Solvency II, such as the risk margin, in both the U.K. and Europe. Unlocking capital to invest in the transition to a greener economy was a "a universal request on both sides of the [English] Channel," as well, he said. While agreeing that equivalence should not be the goal, there may not be a great deal of rule divergence between the U.K. and EU because there are "a lot of common views" on Solvency II's shortcomings.
Adams, who is also the Association of British Insurers' deputy chair, called for the U.K. to move forward changes to its capital regime in areas where there was common ground between regulators and insurers, such as the calibration of the risk margin.
"I would counsel that the best shouldn't be the enemy of the good, [and] where we can make change, I think we should just get on and make it," he said.