GovWire

Solvency II

Government Actuarys Department

December 8
15:24 2022

The Government Actuarys Department (GAD) played a key supporting role in HM Treasurys review of Solvency II. This governs the prudential regulation of insurance firms in the UK.

HM Treasury has published its response to its consultation on the Review of Solvency II with GAD formally advising HM Treasury in the reviews latter stages.

The consultation response announced that the:

  • risk margin, a capital buffer that insurance companies must hold, will be cut by 65% for life insurers and 30% for general insurers
  • eligibility of assets that life insurers can use to match their liabilities will be broadened
  • existing methodology for calculating the matching adjustment benefit will be largely maintained
Person Typing on Laptop with Graphs

GADs role

Our role involved exploring and balancing views of the Bank of England and industry respondents to proposed changes to the matching adjustment.

In the consultation, HM Treasury had proposed to change the way in which the matching adjustment is calculated, as part of the reforms.

The matching adjustment allows life insurers, who match their long-term liabilities with eligible long-term assets, to hold less capital against future liabilities. Less capital is required to be held since insurers that match their asset and liability cashflows are less exposed to liquidity risk.

The proposed changes were intended to improve policyholder protection but would have negatively impacted HM Treasurys other objectives for the review. This would have been due to:

  • increased capital requirements for life insurers
  • increased volatility of life insurers financial positions
  • other perceived negative consequences

The consultation response confirmed that the existing methodology for calculating the matching adjustment will be largely maintained. This followed months of engagement between the government, industry and the regulator.

GAD actuary Steve Lewis led on the project and said: There will be an adjustment to the methodology so that the matching adjustment becomes more sensitive to changes in the credit risk of the matching assets.

We were pleased to be able to support HM Treasury with this highly technical area of the

Related Articles

Comments

  1. We don't have any comments for this article yet. Why not join in and start a discussion.

Write a Comment

Your name:
Your email:
Comments:

Post my comment

Recent Comments

Follow Us on Twitter

Share This


Enjoyed this? Why not share it with others if you've found it useful by using one of the tools below: