A new Brexit Freedoms Bill will be brought forward too

Economic secretary to the Treasury John Glen has set out plans to overhaul the insurance sector’s regulation through reforming Solvency II – this aims to unlock billions of pounds to facilitate investment in the UK’s infrastructure and better enable growth.

Solvency II rules were introduced in the UK in 2016, to harmonise insurance regulation in the European Union (EU).

However, Glen wants the UK to capitalise on Brexit by finessing national regulation to be better suited to the UK market.

Speaking at the ABI’s annual dinner on 21 February 2022, Glen said: “EU regulation doesn’t work for us anymore and the government is determined to fix that by tailoring the prudential regulation of insurers to our unique circumstances.

“We have a genuine opportunity to maintain and grow an innovative and vibrant insurance sector, while protecting policyholders and making it easier for insurance firms to use long-term capital to unlock growth.”

In alignment with this view, in January 2022, prime minister Boris Johnson announced that he would be bringing forward a new Brexit Freedoms Bill. This aims to end the special status of EU law in the UK’s legal framework, to ensure that it can be more easily amended or removed.

Facilitate, not hinder

Addressing the insurance industry, Glen said the current EU-focused, burdensome body of regulation had to be reformed to become UK-focused, agile and easily adaptable. 

He explained that the new UK regime will facilitate rather than hinder market developments, support the entry of new and innovative firms and allow for the release of capital for productive investment in insurance firms.

The proposed Solvency II reform, which was developed by HM Treasury alongside the Prudential Regulation Authority (PRA), includes:

  • More sensitive treatment of credit risk in the matching adjustment.
  • A significant increase in flexibility to allow insurers to invest in long-term assets, such as infrastructure.
  • A meaningful reduction in the current reporting and administrative burden on firms.