Solvency II UK

What is Solvency UK?
 

Following the United Kingdom’s (UK) withdrawal from the EU, the UK Government worked with regulators to adapt the UK’s financial services regulatory framework to the UK’s new position outside the EU. The revised UK prudential regime for insurers is commonly referred to as ‘Solvency UK’. However, for clarity and consistency of its policy materials, the Prudential Regulation Authority (PRA) will continue using the term ‘Solvency II’ until all references are updated across relevant materials. 

The revised Solvency II framework or 'Solvency UK', is the UK's tailored regulatory framework for the insurance and reinsurance sectors, established to replace the EU's Solvency II regime post-Brexit. In general, the reforms are designed to allow UK insurers to allocate more capital to long-term investments such as infrastructure and green projects, thereby supporting broader economic goals while maintaining market stability. 

The UK government launched a review of Solvency II in April 2022 to enhance the competitiveness, dynamism, and capacity of the UK insurance market to support domestic investment. This process includes repealing legislation that incorporated the Solvency II Directive into UK law and replacing it with a new regulatory framework for the insurance and reinsurance industry. This framework adapts elements from the original Solvency II Directive and its Delegated Regulation, integrating them into the Prudential Regulation Authority (PRA) Rulebook and other policy materials, including supervisory and policy statements, as well as UK statutory instruments.  

Key updates introduced to Solvency II (UK) by PS15/24 

On 15 November 2024, the PRA published Policy Statement 15/24 (PS15/24), marking the completion of its initial review of Solvency II regulations as applied in the UK. Importantly, within PS15/24, the PRA confirmed that firms should continue referring to the UK's solvency regime as 'Solvency II' until further notice.

A significant portion of PS15/24 focuses on updating references to EU legislation by expanding the PRA Rulebook to largely mirror relevant EU materials. It also further aligns the UK’s prudential regime for insurers, inherited from the EU, with the UK framework under the Financial Services and Markets Act 2023. The policy statement is directed at UK Solvency II firms, UK insurance undertakings (including non-directive firms), firms planning to enter the UK insurance market, and those considering transitioning to non-directive status from 31 December 2024. 

Among the key changes that have been introduced are: 

• Quantitative Reporting Templates (QRTs): There are substantial revisions to QRTs and National Specific Templates, consolidating them into a new set of UK QRTs. Additionally, narrative requirements for quarterly internal model changes have been introduced.  
• Revisions to the Standard Formula: Includes summary of feedback and updates on SA calculation. 
• Loss Absorbing Capacity of Deferred Taxes (LACDT): Firms wishing to use future profits to justify LACDT will require a waiver, effective from 31 December 2025. 

The biggest challenge for many firms will be adapting to the revised suite of QRTs and updating references in documents to reflect the appropriate UK references. Which means that all the references appearing in firm’s valuation report,  Own Risk and Solvency Assessment (ORSA), Solvency and Financial Condition Report (SFCR), and internal policies will need to be revised. 

On 31 January 2025, the Bank of England also released an updated taxonomy issues log, outlining known issues and clarifications for version 2.0.1 of the reporting taxonomy. This log helps firms identify potential corrections or adjustments, with further updates or fixes likely to follow.