The Solvency UK regime, a post-Brexit evolution of Solvency II, has been shaped by a series of key policy statements from the UK government and the Prudential Regulation Authority (PRA), reflecting the UK’s aim to tailor insurance regulation to its domestic priorities. Central to this reform was the UK Government’s November 2022 policy document, Solvency II Reform: Review and Consultation Response, which outlined the rationale and objectives for amending the existing EU-derived Solvency II framework. It articulated a desire to foster long-term investment, particularly in UK infrastructure and productive assets, while maintaining high standards of policyholder protection and ensuring financial stability. This document laid the groundwork for a more flexible, growth-oriented prudential framework, with a focus on reducing unnecessary regulatory burdens, particularly for smaller insurers.
Following the government’s lead, the PRA issued a suite of policy statements to operationalise these reforms. PS10/23, published in June 2023, provided the first major step in implementing reforms by introducing a new matching adjustment (MA) approach. This included increased flexibility around asset eligibility and streamlined processes for new applications, while also introducing more granular expectations around the risks firms must manage under this revised regime. It emphasised greater responsibility on firms to assess the risks of assets within MA portfolios and aligned supervisory scrutiny with the increased discretion afforded to firms. This approach reflected a broader PRA objective of embedding a more principles-based regime, where firms demonstrate robust internal governance and risk management frameworks.
PS13/23, published in September 2023, addressed changes to the Fundamental Spread, a key component in the calculation of the MA. The PRA adjusted the methodology to better reflect credit risk and retain prudential resilience, albeit in a way that aimed to avoid over-conservatism that might discourage investment in long-term assets. These technical calibrations were critical to balancing industry competitiveness and policyholder security. The PRA also committed to ongoing review and transparency in its modelling assumptions, reflecting a responsive and iterative approach to reform.
PS4/24, released in March 2024, introduced the new Mobilisation Regime for insurers, allowing start-ups and new entrants a phased route to full authorisation. This measure was designed to lower barriers to entry and foster innovation within the insurance sector, consistent with the UK’s broader post-Brexit regulatory agenda. The policy set out clear eligibility criteria and supervisory expectations, enabling new firms to engage in limited business activities under heightened oversight, while building capacity towards full-scale operation.
In July 2024, the PRA published PS11/24 and the accompanying supervisory statement SS2/24, which completed the package of Solvency UK reforms. These addressed reporting and disclosure requirements, replacing certain Solvency II templates with a streamlined UK-specific approach. The objective was to reduce compliance burdens while retaining necessary supervisory insight. This policy also affirmed the UK’s divergence from EIOPA guidelines, underscoring its intention to tailor the regime independently while remaining aligned with international standards such as those from the IAIS.
In Summary
Collectively, these policy statements define the architecture of Solvency UK, signalling a shift towards a more proportionate, risk-based regime. The reforms aim to unlock investment potential, improve the competitiveness of the UK insurance market, and reflect domestic priorities in supervisory practice. At the same time, the PRA has maintained a strong focus on financial resilience and effective risk management, ensuring that the flexibility granted to insurers is accompanied by enhanced accountability. The result is a regime that seeks to be dynamic and responsive, balancing growth with robust prudential oversight.