While smaller insurers are set to benefit from increasing thresholds, those that now fall below the Solvency II thresholds can choose to operate under the non-Directive firm (NDF) rules which are tailored to smaller firms, or remain within Solvency II regime, according to Broadstone.
The Prudential Regulation Authority’s (PRA) Policy Statement PS2/241 set out increased thresholds below which Solvency II regulations will not apply, with the gross written premium income threshold increasing by a further £10 million from the £15 million originally proposed.
In the Policy statement, the PRA cites a further six firms that will fall below the Solvency II thresholds on top of the nine previously referred to in CP12/232, but Broadstone anticipates the actual number falling out of Solvency II is likely to be less.
Those insurers operating underneath the Solvency II thresholds can choose to operate under NDF rules, which are tailored to smaller firms, or remain within Solvency II regime.
It is important for insurers to consider the costs and benefits of operating under NDF rules and also the transition period, which will need to take place before the end of 2024.
The PRA considers that NDF rules feature lower compliance costs than Solvency II, owing to simpler administrative requirements, reporting expectations and capital standards. Nonetheless, the PRA provides the option to remain in Solvency II as some firms may not wish to invest in adapting to a different regulatory regime, especially if their growth plans will soon lift them above the thresholds in the near future.
Firms becoming non-Directive on 31 December 2024 will need to ensure that their finance and actuarial reporting processes are ready to report under new rules. Broadstone highly recommends firms prepare for this in advance and ensure that the end-to-end process is in good working order before the end of the year.
Cara Spinks, Head of Insurance Consulting at Broadstone, said: “The UK insurance market is on the brink of a significant overhaul of the rules which will have varying degrees of impact across the sector. The main impacts for smaller insurers will come from the increase in thresholds before Solvency II applies.
“This could be a fillip for some smaller insurers as it will increase opportunities for competitiveness and growth, and allow them to expand without assuming the burden of Solvency II reporting and capital constraints.
“However, those firms that do fall below the Solvency II thresholds will need to consider the costs and benefits of operating under NDF rules.”
|
