Solvency II

In January 2013, the new regulatory regime of the insurance industry – Solvency II – will come into effect. The Directive seeks to establish a solvency regime that is better matched to the true risks of insurers, and improves levels of disclosure and transparency.

Solvency II is an important and timely modernisation of prudential regulation for insurers and reinsurers. Preparation for and implementation of Solvency II is a significant challenge to industry but a challenge that will ease with time, at which point the benefits of a modern, risk-sensitive regime will become more apparent. The Government has worked hard with European partners to ensure that appropriate calibrations and a suitable transitional period will allow firms to implement the regime by January 2013, without market disruption.

The UK supports the introduction of a risk-based regime that will help raise prudential standards and enhance policyholder protection, while also developing a single and more competitive insurance market in the EU.

Recent discussion has been focused on the development of detailed Level 2 implementing measures, which build upon the high-level Level 1 principles underpinning the Directive. The Directive is being developed in four distinct stages under the Lamfalussy procedure:

Level 1 – this sets out the high-level principles for the Directive, which was ratified by the European Parliament and Council in May 2009.
Level 2 – detailed implementing measures are expected to be published and negotiated in 2011. The target date for final adoption of Level 2 measures is October 2011.
Levels 3 and 4 – these will detail the steps taken by regulators after the adoption of Level 2 measures, to ensure insurers’ compliance.

In March 2010 the Treasury, in conjunction with HMRC, published a paper on the implication of Solvency II on taxation. Please see:

Solvency II and the taxation of insurance companies (March 2010)

Solvency II

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