The Treasury has opened a consultation on how the government should implement the European Unions Solvency II directive in the UK.
The launch of the six-week consultation on Wednesday comes after the initial plan to hold one in 2011 was abandoned as work was ongoing to finalise the Omnibus II directive that will underpin Solvency II.
However, Omnibus II came into force May 23 after it was agreed by the European Parliament, meaning the consultation could now be held. The directive, which is the legislation underpinning Solvency II, will introduce long-term guarantees that will adjust the Solvency II framework to cope with 'artificial' volatility and the low-interest rate environment. This will also smooth the transition from the current Solvency I regime.
Setting out the consultation, the Treasury document stated that views are sought on two policy issues related to UK transposition of Solvency II.
'Firstly, on the use by undertakings of the volatility adjustment and whether it should be subject to prior approval by the regulator (the Prudential Regulation Authority).
'Secondly, on the approach to be adopted in removing business permissions where an undertaking fails to meet the Minimum Capital Requirement.'
Consultation responses need to be submitted to the Treasury by September 19, and views are sought from UK insurance and reinsurance firms that fall within the scope of the directive.
The Treasury will set out the response to the consultation later this year, when it will also publish the final statutory instrument to be submitted for Parliamentary approval.
In addition, the PRA will undertake its own consultation on amendments to its regulatory rules to apply the long-term guarantee measure in its rulebook.