20 October 2020
Brexit will offer the UK an opportunity to review the Solvency II rules for its domestic insurance industry, and according to Hugh Savill, director of regulation at the Association of British Insurers (ABI), more flexible rules to invest in illiquids should be high up on the agenda.
Speaking on a panel at Insurance Asset Risk 2020 conference, taking place virtually today, Savill said: “The good thing about being independent is that we will be able to set our own rules, so strictly speaking EIOPA’s review of Solvency II is not relevant to us.”
Looking at the UK’s own review of insurance regulation, Savill went on to say that the industry is hopelessly over capitalised at the moment. “This is awful waste of money particularly when regulatory capital seats on insurance balance sheets at a time when investment are badly needed.”
Insurers need access to a much wider range of illiquids investments with interest rates at their current level, Savill continued, as liquid investments are not really attractive, but the matching adjustment rule is still far too restrictive.
“Thirdly, a lot of the requirements in pillar III are a complete waste of time that nobody reads,” he said.
Savill noted that while the EU tends to review its rules and regulations every five years, the UK are less prone to changes and it might take a decade before a review takes place. As such he said the rules that will be set out today need to be robust enough to help the insurance industry cope with the great challenge of climate change.
“We had a bit of a wakeup call with the Bank of England [asking for] climate stress test last year,” Savill said. “Frankly, insurers are not very good at it because we don’t have the data, and there aren't enough scenarios planning, we don’t know how safe our assets are in relations climate change.”
He concluded: “The great need is to invest in the recovery from COVID and climate change both require more illiquid investments.”
More information about the event and how to attend is available here.