The PRA last week launched its latest consultation on reducing the burden around reporting and administrative requirements for Solvency 2.
Changes to reporting requirements are one of four main pillars of the Government’s proposed reforms to the controversial rulebook, which was introduced by the EU in 2016 and requires UK insurers to hold vast sums of cash on their balance sheets.
The PRA is consulting on changes to reporting requirements until next May. It said it will consult on the other three sections of reforms – including capital requirements – “at a later date”, raising the prospect that Solvency 2 reform will drag on beyond 2025, nearly a decade after the UK voted to leave the EU.
Insurance has been touted for years as an industry that could benefit from relaxing EU rules and industry chiefs have pledged to unleash a £90bn-plus investment “Big Bang” if ministers take advantage of Brexit and slash the EU-era red tape.
Insurers and pension funds have argued that the current restrictions mean they are unable to plough as much capital as they want into illiquid assets like infrastructure.
However, there are concerns in Government that regulators are holding up the reforms.
The PRA, which supervises Britain’s insurers, previously said it was determined to ensure any easing of the regulatory burden does not create a risk to policyholders or to the stability of companies. It also warned against an overhaul that “decapitalises the insurance sector”.
Before the summer Tory leadership election, Rishi Sunak, now Prime Minister, met with insurance executives and told them that he wanted to deliver Solvency 2 reforms “at pace”.
A source close to the Bank said the PRA has already delivered its first phase of Solvency 2 reporting reform which has “significantly reduced reporting for small and medium firms”.
They added that the PRA could have waited to consult on Solvency 2 reporting reforms until after the Government’s policy became clearer, but the regulator was “keen to go quicker on consulting where changes are not dependent on policy reform”.
The proposed reforms are expected to reduce the reporting and administration burden on businesses, increase their flexibility to invest in long-term assets and free up funds by reducing the risk margin insurers face.
At the same time the “matching adjustment” mechanism covering long-term investments, which the industry says pushes it away from projects such as wind farms and into low-yielding sovereign and corporate bonds, will also be tweaked.
There have been growing concerns among insurance chiefs about how the overhaul is developing, with some arguing that the PRA is looking to water down charges to the “matching adjustment” which could make large parts of the reforms redundant.
The Government has completed its own consultation on Solvency 2 and pledged to reform the rulebook through its Financial Services and Markets Bill which is currently going through Parliament. However, the draft legislation contains few specific details about the changes ministers will make to the regime.
A Bank of England spokesman said: “The timing of our proposed reforms to Solvency II reporting requirements is deliberately designed to coincide with the Government’s legislation. It would be costly and inefficient for firms to make two sets of changes in close succession.”
