The Insurance and Reinsurance Undertakings (Prudential Requirements) (Risk Margin) Regulations 2023

The new Insurance and Reinsurance Undertakings (Prudential Requirements) (Risk Margin) Regulations 2023 were published on legislation.gov.uk, the official UK website for publicizing legal documents. The regulations are a first set of changes in relation to Solvency II in an effort to eliminate retained EU legislation (REUL) and to make necessary adjustments to Solvency II to adapt to UK market needs.
These new regulations now modify both the Solvency 2 Regulations 2015 (SI 2015/575) and the Retained Commission Delegated Regulation (EU) 2015/35 (SI 2015/35) under Solvency II to
– modify the way risk margins are calculated which must be included in insurance firms‘ capital to ensure that an insurance’s liabilities can be transferred to a third party, should an insurer fail. Specifically, the calculation formula is adjusted to counteract an overestimation of insurance liabilities and thus the amount of capital that must be held by insurers (please see regulation 2 for the revised formula) and
– eliminate various reporting requirements as set out in Article 312 of the above noted Delegated Regulation, including the regular supervisory report referred to in Article 304(1)(b) of the Solvency II Delegated Regulation.
The regulations also modify the circumstances under which the Prudential Regulation Authority (PRA) can withdraw the approval for applying a transitional deduction to an undertaking’s technical provisions. These technical provisions act as reserves for expected future claims by policyholders and beneficiaries, including a safeguard against the undertaking’s potential failure.
It should be mentioned that these changes are temporary in nature until new own UK regulations replace the noted EU retained legislation.