24 November 2016 Insurance

Insurers urge UK to use Brexit leeway for Solvency II but face sceptical regulator

While insurers are suggesting that the UK should make use of the leeway achieved through Brexit to adapt Solvency II rules to the needs of the domestic market, the regulator warns that global standards are important to the industry.

Brexit creates policy opportunities, said Julian Adams, group regulatory and government relations director at Prudential during a panel discussion at the Association of British Insurer’s 2016 annual conference.

“We absolutely would encourage the bank [Bank of England], the PRA [Prudential Regulation Authority] to think as much as possible about how it can use perhaps a greater freedom of manoeuvre,” Adams said. He suggested that equivalence is not the same as being identical and that there may be a way to reach a better outcome for the UK and still remain equivalent.

“Our policy position should surely be we have a regime which is appropriate for the UK,” Adams said.

“Brexit has an impact on how we do business,” said Aki Hussain, chief financial officer of Hiscox. He pledged that the regulator should address those aspects of Solvency II which do not work for the UK, citing the “risk margin in its current form” and the “long-term guarantee package.”

“What is Brexit for if not to make the policies work for us?” Hussain asked.

Hussain also noted that Solvency II has moved the prudential landscape to a much more rule-based and data-hungry approach as opposed to a principle approach, which may have restricted the ability of the regulator and the re/insurance sector to respond quickly to fast-moving market changing events.

But the regulator in form of the Bank of England dampened insurers’ expectations on how much the regulatory rules can be adapted to the needs of the UK market.

Victoria Saporta, executive director Prudential Policy at the Bank of England agreed that regulatory policy as well as supervision need to be adaptable to new challenges not only to support growth but also to support financial stability.

However, ”in order to preserve financial stability and the reputation, it is important for financial centres like London to also be seen as paragons of adherence to international standards,” Saporta noted. “Unless you do that, you can create a lot of regulatory arbitrage across the world, you create a lot of ringfencing and fragmentation of financial institutions, which are not good for global pools of capital and for the transfer of capital.”

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