UK Parliament launches inquiry in Solvency II

As a result of Brexit the UK Parliament’s treasury committee is launching an inquiry into Solvency II, a directive which provides a regulatory framework for EU insurers.

“Brexit provides an opportunity for the UK to assume greater control of insurance regulation,” Andrew Tyrie MP, chairman of the treasury committee said in a statement.

Solvency II was implemented in January 2016 after being postponed from 2014. “The Solvency II Directive came into force in January, only after a heap of concerns had been expressed about it. Among its manifest shortcomings was the failure to secure value for money over its implementation,” said Tyrie.

The committee is acting on evidence that suggests Brexit provides the opportunity to leave the Solvency II arrangement and that doing so would help insurance companies.

“The treasury committee will now take a look at the Brexit inheritance on insurance to see what improvements can be made in the interests of the consumer,” added Tyrie.

Insurance investors currently represent more than 10 percent of the €44 billion invested into European private equity, according to industry body Invest Europe.

Solvency II levies a 49 percent capital charge on unlisted equities including private equity, real estate and infrastructure funds. That charge drops to 39 percent for unleveraged funds established in the EU.

The Solvency II directive also requires insurance companies to disclose information about investments and as a result, in order to support insurers in meeting their new reporting obligations, private equity managers are expected to provide data and information about the funds they manage.

However, since it was introduced there has been some confusion about what information EU insurers are required to gather from external fund managers for reporting purposes. This uncertainty has been forcing insurers to send GPs broad information requests that mimic information already provided in quarterly statements, creating a redundant reporting exercise for the firm’s back-office staff, as previously reported by pfm.

In May, Invest Europe developed a dedicated template to help private equity fund managers provide data to their insurance investors under the new Solvency II reporting requirements.

The latest inquiry will explore the impacts of the directive, and the options now available to the UK, in more detail, the committee said.

Written comments are being accepted by the commission until 11 November 2016.