PRA speech: competition, productive investment and Solvency II Review

Charlotte Gerken, PRA Executive Director – Insurance, has delivered a speech on the goals of competitiveness and productive investment and their role in the Solvency II Review. Highlights include:

  • investment flexibility – proposed reforms in this area relate to assets with prepayment and/or construction risk. Ms Gerken explained that these changes could unlock further opportunities for productive investment in matching adjustment portfolios;
  • the value of liabilities – the PRA has expressed concern in relation to the size of the risk margin and its sensitivity to low interest rates. However, Ms Gerken explained that simultaneous reform of both risk margin and matching adjustment can correct a potential distortion in the current framework which has meant that life insurers have been retaining less insurance risk, but acquiring additional credit risk (including counterparty credit risk);
  • process improvements – the PRA wants to reduce the resource burden on insurers by improving reporting and streamlining the application processes for internal models and matching adjustment. This will free up resources for innovation, thereby improving the competitiveness of the insurance sector and its ability to provide long-term productive finance to the UK economy.

Lucy Hadrill