Jay Patel, insurance analyst at Timetric’s Insurance Intelligence Center (IIC), analyses the impact of Brexit on Solvency II. According to Patel, it is fair to say whichever way Brexit is executed (if it is executed at all); the UK’s influence over the path of Solvency II will be diminished regardless.
On June 23, 2016, the UK voted in a referendum to leave the EU. Regardless of the trading relationship that the UK eventually agrees on with the rest of EU Member States, Solvency II is very likely to be affected.
If the UK secures full European Economic Area (EEA) membership and retains its passporting rights then the regulatory disruption from Brexit, will be minimal for insurers based in the UK, as the UK will be bound to follow Solvency II in exactly the same way it is doing so now. However, this option would still affect all insurers based in the EEA.
In this scenario it is much likely the UK would not be able to keep the right to have a say in the decision making of the European institutions that oversee the development of Solvency II.
The PRA would not be in discussions between national regulatory authorities (NRAs) and therefore would not have a say on decisions taken to amend the framework.
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This is significant because as the regulator of one of the largest insurance markets in Europe the PRA is likely to have had a substantial influence on the decisions taken at a European level.
Furthermore, as an authority that has been described as ‘gold-plating’ Solvency II regulations due to the stringency with which they have applied the rules, it is conceivable that Solvency II could in many ways be less strenuous for insurers than it would be if the UK had remained a full PRA member.
This also would be true if the UK completely left the EU and did not have access to the EEA.
It cannot be ruled out, in light of the political events of the past two weeks that the vote to leave the EU for a myriad of reasons, will not be implemented.
Even in this scenario, in which Article 50 is not triggered there would be a similar impact to the one detailed above, if not as pronounced. EU leaders in response to the vote have already stated that UK will be sidelined in discussions regarding future EU policy across many areas.
Although entirely voluntary, the resignation of Lord Hill as the EU Commissioner responsible for financial stability, financial services and the capital markets union means the UK no longer has such a strong influence within the commission over the direction of EU regulation regarding the financial sector.
In summary, it is fair to say whichever way Brexit is executed (if it is executed at all); the UK’s influence over the path of Solvency II will be diminished regardless.
This will have significant implications for the future path of insurance regulation across the continent.
About the IIC
Timetric’s Insurance Intelligence Center (IIC) is the most comprehensive source of data on the global insurance industry covering markets, countries, companies and regulatory frameworks.
For more information on the IIC, please visit http://www.insurance-ic.com