Of course, the PRA advocated for a reduction in the risk margin only if there were a material strengthening of the fundamental spread.
In a February 22 2023 letter, Andrew Bailey set out the Bank of England’s estimation that the proposed reform of the risk margin will raise the annual risk of an insurance company failure from 0.5 per cent to 0.6 per cent.
How will the PRA feel about and deal with this perceived dilution of the industry’s “1-in-200” tolerance for failure?
The end is in sight
The UK’s Solvency II reform programme has run a long (and at times winding) course. We now have Solvency UK and potentially a new abbreviation to get used to.
While the start date for Solvency UK is still unclear, there is a target implementation of the risk margin changes later in 2023 to coincide with the biennial recalculation of transitional measure on technical provisions (TMTP) on December 31 2023.
We can take heart that the end is in sight, but there is still a way to go and detail to be worked out. Understanding the detail will remain as important as ever.
Anthony Plotnek is director and Ed Hawkins is associate director of insurance consulting & technology at WTW
