Sam Woods, Deputy Governor for Prudential Regulation and PRA CEO, has delivered a speech on the reforms to the regulation of insurance providers. Mr Woods considered the industry reaction to the PRA’s discussion paper on reforms to the UK Solvency II regime, in particular the reaction to the proposed matching adjustment (MA) reforms, which has been strongly negative.
The PRA’s view is that it is essential to tackle the issues it has identified with the current MA requirements – the PRA considers that the broad mechanism works but the EU design makes insufficient allowance for uncertainty and the difference in riskiness between assets. However, Mr Woods made it clear that the PRA’s proposals on MA reform are not final and it would welcome any ideas and suggestions for how the problems can be tackled.
Mr Woods also commented on the suggestion made by some insurers that the UK should simply align with the evolving EU version of Solvency II. He rejected this suggestion, noting that the MA is little used in the EU and so the EU has no incentive to make changes to address the problems identified by the UK.