The Prudential Regulation Authority (PRA) has announced an update increasing the gross written premium income threshold to £25m, a further £10m increase compared to the original proposals.
This change affects insurers operating below the Solvency UK thresholds, which the PRA now estimates could include up to 15 firms. These insurers need to consider the costs and benefits of operating under non-Directive firm (NDF) rules.
While smaller insurers are set to benefit from increasing thresholds, those that now fall below the Solvency II thresholds can choose to operate under the NDF rules, which are tailored to smaller firms, or remain within the Solvency II regime, according to leading actuarial consultancy, Broadstone.
The PRA’s Policy Statement PS2/24 outlines these increased thresholds, with the gross written premium income threshold increasing from the £15m originally proposed. The PRA cites an additional six firms that will fall below the Solvency II thresholds on top of the nine previously mentioned in CP12/23, but Broadstone anticipates the actual number falling out of Solvency II is likely to be less.
Those insurers operating below the Solvency II thresholds can opt to follow NDF rules, which feature lower compliance costs due to simpler administrative requirements, reporting expectations, and capital standards.
However, the PRA provides the option to remain within Solvency II, as some firms may not wish to adapt to a different regulatory regime, especially if their growth plans will soon lift them above the thresholds.
Firms becoming non-Directive on 31 December 2024 will need to ensure that their finance and actuarial reporting processes are ready to report under new rules.
Broadstone highly recommends firms prepare for this in advance and ensure that the end-to-end process is in good working order before the end of the year.
Cara Spinks, head of insurance consulting at Broadstone, said: “The UK insurance market is on the brink of a significant overhaul of the rules which will have varying degrees of impact across the sector.
“The main impacts for smaller insurers will come from the increase in thresholds before Solvency II applies.
“This could be a fillip for some smaller insurers as it will increase opportunities for competitiveness and growth, and allow them to expand without assuming the burden of Solvency II reporting and capital constraints.
“However, those firms that do fall below the Solvency II thresholds will need to consider the costs and benefits of operating under NDF rules.”
