UK vows not to 'gold plate' Solvency II caps

UK insurers will reportedly not be subject to capital requirements that go beyond those set out in Solvency II when the directive becomes effective next year, a promise that could limit any potential pullback from UK insurers investing in private equity and other alternative strategies.  

Solvency II requires insurers to hold varying levels of capital based on the riskiness of an asset. For private equity holdings, insurers are required to set aside €39 for every €100 invested under a default risk model. The Bank of England’s acting head of insurance supervision reassured the industry last week, saying they will not be subject to tougher requirements, according to the Daily Telegraph.

 

“I have said this before but I think it is worth reiterating,” said Paul Fisher of the Bank’s Prudential Regulation Authority in the report. “The PRA believes the UK industry is in a good position, having had the UK risk-based ICAS regime for around ten years. We are therefore not looking to use Solvency II as an opportunity to raise capital requirements across the board…The PRA is committed to upholding this valued objective and will implement the directive as intended. We can’t and won’t gold plate.”

 

The directive, which was originally scheduled to go live last year, becomes effective across the EU on January 1 2016. Fearing the directive will force them to set aside too much reserve capital, some insurers have seen Solvency II as a reason to pull back from private equity investing. A survey of institutional investors conducted by UBS Fund Services and audit firm PwC revealed that 70 percent of European insurers said they will be less willing to invest in alternative assets as a result of Solvency II.

 

However, similar surveys have produced conflicting results. A May 2014 survey from Goldman Sachs Asset Management found that 28 percent of 233 global insurers surveyed intend to increase their investment in private equity.