Is it possible for regulators to become too heavily involved in the insurance business? One giant of the UK insurance sector seems to think so.
Legal & General has accused a regulator of becoming increasingly interventionist in their control of the industry believing that their role should be cut back. Specifically, it highlighted the position of the Prudential Regulation Authority (PRA) in relation to Solvency II rules stating that it is “effectively overruling the judgment of the board” in relation to setting capital requirements; and that it has started to take an increasingly “directive” approach in regards to transaction approval.
“Boards do not feel empowered to make commercial decisions without reference to the regulator,” it said in a submission to the Treasury Select Committee.
The insurer went on to suggest that audit firms could do some of the work currently attributed to the PRA to free up the regulator to focus on “more strategic issues which impact its statutory objectives”.
Its words, reported on by
The Financial Times, were also backed by Prudential which stated about Solvency II that the regime “fails to reflect adequately the long-term nature of the liabilities in many UK life insurance products”. It described the PRA as “gold plating rules” and taking a more conservative interpretation than many regulators across Europe.
There is also concern from
Aviva in relation to Solvency II, and particularly about the application of the rules once the UK exits the EU.
“The main priority for Aviva is that the UK does not simply become a rule-taker with respect to Solvency II and any future changes that are made to it,” it stated. “It is essential the UK is in a position to determine and control a UK regulatory regime suitable for the UK context.”
In addition, there were several submissions in the note to the Treasury Select Committee with regards to risk margin – a layer of capital that can be held against long-term business.
In its submission, Aviva commented that it was “inappropriate” in relation to long-term life insurance and that it was overly sensitive to interest rates.
There is belief that risk margin is making annuities more difficult and leading to some businesses setting up offshore insurance centres.
Related stories:
Refine not replace Solvency II, insurers tell government
FCA reveals complete list of insurance firms exposed to Brexit risk
