IMF argues PRA cannot make independent policy judgements under SII review

Written by Adam Cadle

13/04/2022

The Solvency II review does not allow sufficient space for the PRA to make policy judgements independently and publicly, the IMF has argued.

The IMF’s argument is based on the fact that the UK “has inherited legislation that puts highly technical matters such as the design and calibration of the risk margin and matching adjustment in legislation”. It added: “The Solvency II review consultation is Her Majesty’s Treasury (HMT) led and ultimate decision making is ministerial”

The IMF said one way forward to address the identified independence issue with the current legislative structure, would be to ensure that requests for advice from the PRA are made transparently by HMT, and that the PRA can provide that advice in an independent and transparent way. “Any variation in final policy compared to PRA advice would then be clear.”

On the issue of macroprudential supervision of the insurance sector, the IMF said this “could be enhanced through a more structured and regular consideration of macroprudential risk of the insurance sector”.

“While the Financial Policy Committee (FPC) requests deep dives and analysis of specific activities, the last sectorial deep dive for the insurance sector was undertaken in 2016. Regular reporting should be provided by the PRA Insurance Directorate on broad trends in the insurance sector that may have near-term or long-term consequences for the functioning of the insurance market and other financial sectors. A process, for example, inspired by the IAIS Global Monitoring Exercise (GME) and implemented in a domestic context might be appropriate and the process could be tied to the qualitative input required for the GME.”

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