Dear friend,
It looks like, in the UK market at least, the debate on details of Solvency II is becoming increasingly heated in the run up to implementation.
This week we were treated to the spectacle of Hugh Savill, director of regulation at the Association of British Insurers, claiming that officials at the Prudential Regulation Authority (PRA) were "raising capital levels by any means available" with regard to their approach to the implementation of Solvency II.
Savill was concerned that the PRA's approach may be detrimental to the future of the UK insurance industry as investors decide there are other, more attractive markets with less restrictive capital requirements in which to place their money.
Almost certainly referencing the PRA's latest missive on the approach to the risk margin, he talked about supposedly onerous requirements because of regulators' concerns about credit risks.
Well, we'll come back to the subject of credit risk in future, but for the time being let's focus on the idea that the regulator's approach will mean that the UK will lose its attractiveness as an insurance market if capital requirements are too onerous.
I'm not convinced. For a start, we're still very much in the consultative phase of Solvency II, so much detail remains to be settled.
Putting that aside, however, we've heard these sorts of arguments before. I seem to remember that when Lloyd's started getting its act together and beefing up its approach to risk and regulation in the 90s, doom-mongers warned that the changes would deter investors and be the death of entrepreneurialism.
Not so - Lloyd's is now a tough regulatory environment indeed, with much more onerous capital requirements, but these have only served to bolster the effectiveness and image of the market which is as popular as it's ever been, with record levels of capacity.
Would it be going too far to suggest that something similar might happen to the wider UK life and general insurance market? As long as the PRA doesn't get too carried away, a rigorous approach might not be as bad as all that.
Marcus Alcock,
Editor, InsuranceERM
