Post-Brexit changes to Solvency II requirements will likely be welcomed by the life insurance market but commercial carriers could be adversely affected if they go too far.
Further to the responses received by the UK Government to its “Review of Solvency II: Call for Evidence” we expect progress will be made towards reforms in a number of key areas including the risk margin, matching adjustment, solvency capital requirements, reporting and third country branch capital requirements.
We expect that this will be welcomed by life companies which have a predominantly UK customer base and will view any reductions in capital burdens and enhanced investment opportunities favourably. However, commercial (re)insurers, with a more global client base, could be threatened by major changes if jeopardising equivalence assessments (which continue to drag on) or having the potential to result in the imposition of burdensome reinsurance collateral requirements.
This is particularly pertinent considering the number of carriers, as well as Lloyd’s of London, which established European platforms in response to Brexit to secure continued access to European markets and in respect of which business was and continues to be substantially reinsured back to the UK.