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“This new investment has never been more critical – at a time of significant economic pressure, to help level up communities and economies across the country through new infrastructure, homes, and technologies. But this ambition will not be realised without the right reform. While good progress has been made to deliver Solvency II reform, fundamental issues remain with the current proposals.”

On the proposals to reduce the risk margin and expand the matching adjustment (MA) eligibility criteria, the trade body described the overall package as “significantly less favourable” compared to the European Union version of Solvency II.

“The proposals for reform of the MA fundamental spread would result in a material Brexit penalty – the package in the UK will leave annuity firms worse off than if the UK were a member of the EU or even a ‘rule-taker’,” asserted the ABI.

“The European Parliament is proposing an ambitious reduction to the risk margin (4% of cost of capital, 0.9 value for lambda, and no floor). If adopted, these proposals would considerably dwarf the risk margin reform proposals in the UK for general insurance firms while calling into question the Brexit dividend.”

The ABI, which commissioned broking giant WTW to produce an independent report as part of the association’s response, went on to point out: “Under the current proposals, stated goals of a 10-15% release of current capital held by life insurers will not be achieved and the needed boost to long-term investment to support government ambitions will not come to fruition.”

Additionally, in the matter of policyholder protection, the trade body is concerned that the Prudential Regulation Authority (PRA) is “ignoring the many policyholder safeguards” within Solvency II. The response also spanned areas such as international competitiveness, reporting and administrative burdens, and the future regulatory framework.

“We all want to see reform of the Solvency II regime that works best for the needs of the UK and enables investment at a crucial time,” commented ABI director general Hannah Gurga. “The insurance and long-term savings industry could invest more capital to help level up the UK, boost the economy, and support the transition to net zero.

“The current proposals do not realise that opportunity and would risk penalising pension customers as a result of the increased costs associated with the proposed reforms. We are committed to working with the government and the PRA to find a solution that meets all of our objectives.”


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