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On the first day of hearings on the impact of Solvency II — the EU rules on harmonising capital requirements for insurers — the committee heard that annuity prices moved by 5 to 10 per cent when it was introduced at the start of last year.
The industry is hoping Brexit will prompt a relaxation of some parts of the regime in the UK. It says the regulations make some types of business — especially very long-term products — less attractive and introduce complex and unnecessary reporting requirements.
“The rules are very much focused on the European market. They don’t necessarily reflect some of the characteristics of the UK market,” Phil Smart, a partner at KPMG, told the committee. Insurers have also complained that the UK’s Prudential Regulation Authority has taken a far more cautious approach than other EU regulators when it comes to interpreting the rules.
Andrew Chamberlain of the Institute of Actuaries said Solvency II and the PRA’s implementation had combined to make some products unaffordable. “The price the consumer is paying now for the level of protection of Solvency II, together with the PRA’s interpretation on top, is a very high price particularly in some business lines such as annuities.”
“The balance between security and value for money has got out of kilter,” he added. But while parts of the industry — particularly life insurers — would like to see changes to the way Solvency II is applied in the UK, there is also concern about whether a changed regime would be deemed equivalent to EU rules.
The insurers say equivalence would make it much easier for them to do business in the EU after Brexit. Some regimes, such as those in Bermuda and Switzerland, have equivalence with Solvency II, although US insurance rules do not.
Full article on Financial Times (subscription required)