UK life and pensions firms are hoping for a reduction in costs and administrative workloads from the European-wide Solvency II Directive, after the UKs Prudential Regulatory Authority (PRA) conceded there may be scope to ease requirements.
It comes after the UK governments Treasury Select Committee published a letter it received from the chief executive of the regulator, which acknowledged adjustments could be made to the UKs interpretation of the European rulebook, which came into force at the start of 2016.
The admission follows a length period of lobbying from the insurance and investment industries which claim some reporting requirements are unnecessary and increase costs for companies and their clients.
Steven Findlay, assistant director for prudential regulation at the ABI, explains that for UK plc to remain attractive to investors, it is important that a regulatory regime strikes the right balance. That balance, he tells II, isnt pursuing the financial stability of the graveyard. It is allowing companies to innovate, make a fair profit, and ensuring a high level of protection.
Many of the concerns which we had with Solvency II here in the UK are home grown. It is the result of the PRAs interpretation of the EU requirements. When you start to add together each of those interpretations, the cumulative impact make us question how level the playing field is across the EU.
Findlay says the UKs vote to leave the European Union makes the potential changes more important than ever, if the UK is to retain its reputation as a world center for insurance.
In a letter released to the media, PRA chief executive Sam Woods outlined five areas where he saw the potential for a rethink, including a requirement for firms to hire an external auditor to scrutinize their solvency financial condition reports.
The SFCR is a lengthy public report designed to show a financial institution is in good health, but critics say the cost of employing an external auditor to analyse the report could be better spent in other areas such as product innovation, research, or customer services.
Although the fundamental regime is sound, there are nevertheless adjustments that need to be made to address issues in important areas, Woods wrote in the letter to the House of Commons Treasury Committee chairman.
Other areas where Woods has conceded that change is possible include the reporting requirements relating to firms longevity transfer and hedging arrangements. He also suggested that the reporting burden could be reduced for firms making changes to their internal model a predictive chart designed to show that the company will remain solvent, even in periods of volatility.
The ABI has said the reporting requirement for firms under Solvency II could be up to eight times greater than under the previous regulatory regime.
The Prudential Regulatory Authority did not respond to a request for additional comment at the time of publication.