Solvency II for insurers
Solvency II is an updated set of regulatory requirements designed to harmonise the regulation of insurers within member states. The new structure is based on three core principles or “pillars”:
- Pillar 1 – quantitative requirements (particularly capitalisation)
- Pillar 2 – governance and risk management of insurers
- Pillar 3 – disclosure and transparency requirements
Solvency II has been the subject of ongoing controversy within the UK pensions arena since it became apparent that the new requirements might apply to defined benefit pension schemes. After taking feedback, the Commission accepted that the directive should not apply to occupational pension schemes, though it does apply broadly across the insurance sector including to annuities and personal contractual pensions arrangements.
Some commentators have suggested that the new requirements brought in by Solvency II requirements could, if improperly implemented, ultimately lead to higher costs for pensioners.
Solvency II for DB schemes
Commissioner Barnier confirmed in July 2013 that, for the time being, the provisions of the new pensions directive which would apply Solvency II style requirements to UK DB schemes were not being pushed forward. The new pensions directive will contain only provisions on governance and transparency.
