In its response to the Select Committee inquiry into the impact of Solvency II (as reported by us in September), the Association of British Insurers (ABI) has called on the Government to refine and not replace Solvency II. The response also claims that the implementation of the new regulations is harming customers, distorting markets and potentially unnecessarily affecting UK firms' ability to compete in the EU and globally.
Some commentators in the market have called for Solvency II to be completely dropped in the event of Brexit. However, the ABI considers that the Solvency II text should be adopted into UK legislation and then reassessed to make sure the rules are flexible for the UK market.
"Change should be avoided for its own sake, hence we do not support a fundamental replacement of Solvency II. Further, there is no current consensus on what would replace it"
The response goes on to remark that Brexit is an opportunity to make refinements to the Solvency II regime to ensure that it is more appropriate for UK insurers and customers. Such refinements would relate to the risk margin levels and to compliance, reporting and governance requirements which are seen by some as excessive and creating disproportionately high costs, particularly for small and mid-sized insurers.
In its response, the ABI also questions whether the PRA's interpretation and implementation of the rules has gone beyond the requirements of Solvency II and what is necessary for financial stability. Therefore prior to Brexit, the ABI considers that there are things that could be done now to change the impact of Solvency II.
Note that the deadline for written submissions to the Select Committee has now passed.