While some hoped Britain’s vote to leave the European Union might lead to a softening of Solvency II capital rules, insurers and their advisers have warned this is unlikely to be the case. However, it may not be all bad news, with the added regulations leaving insurers in a better position to handle post-Brexit turmoil.
Speaking to the Financial Times
James Bateson, a partner at law firm Norton Rose Fulbright said if UK insurers want to retain access to EU markets, Solvency II regulations can’t change much. The policies surrounding Solvency II were heavily influenced by UK regulators anyway, and if insurers want to retain access to the single market they are going to have to stick to them.
However, insurers are still hoping some specific details in the regulations might have room to change. The extra layer of capital that applies to longer term life insurance products, called the risk margin, is particularly frustrating for insurers with some claiming it discourages them from writing annuities. The cost of administration surrounding Solvency II is also a concern.
Nevertheless, Solvency II may be a boon for the insurance industry in its current time of need. The increased regulations have left insurers in a far better position to weather a tumultuous market and potential shocks.
The most immediate effect of the Brexit so far has been an unstable stock market, a trend that will continue until the details of Britain’s exit are better known. Global insurance leader at EY, Shaun Crawford, told The Financial Times
the industry is in a far better position to cope with market shocks than it was five years ago.
In Insurance Business UK
’s coverage immediately following the Brexit announcement, experts said Solvency II is likely to stay. Paul Latarche, head of insurance sector group at Moore Stephens said Solvency II has already been incorporated into UK law so a rollback is unlikely. UK insurance leader at PwC Jonathan Howe said too much time, money and effort had gone into creating Solvency II for it to be repealed.
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