"We should not ignore the consequences of Brexit on this important UK industry, nor the way that it is regulated irrespective of Brexit."
The report raised concerns about the 'practical difficulties' of Solvency II regulation and is urging the PRA to "have a pragmatic discussion with the insurance industry" on the scope for amendments.
The Treasury also urged the PRA to give equal weight to its secondary objective which is to ‘facilitate effective competition’.
In its report, the Treasury said that evidence submitted to the Committee "highlighted problems both with the legislation as drafted and with the way it has been implemented in the UK by the PRA".
It continued: "While some differences of opinion are to be expected, the current Committee is as concerned as its predecessor at the extent of disagreement between the PRA and industry on matters that should be relatively factual–for example, around the availability of investment grade long-term assets. Such disagreements do not foster good policymaking."
As a solution, the Commitee said it would like to see the development of a "clear agreed strategy designed to provide a roadmap" for:
- What changes to insurance regulation can be implemented by the UK authorities now, unilaterally, without the need for a change in the Solvency II Directive,
- What steps the UK regulator would like to see taken to refine the Directive or its applicability to the UK post-Brexit, as a contribution to the Brexit negotiations,
- What action can be taken post-Brexit to foster innovation, competition and competitiveness for the benefit of UK consumers and the standing of the UK’s place in the international insurance industry.
The Treasury added: "Clearly it will be helpful and constructive if EU member states can agree changes together because, regardless of Brexit, there is a value to harmonisation of the industry’s regulation."
Nicky Morgan MP, Chair of the Treasury Committee, said: “The UK insurance industry managed investments of over £1.9 trillion in 2016 and paid nearly £12 billion in taxes to the Government. We should not ignore the consequences of Brexit on this important UK industry, nor the way that it is regulated irrespective of Brexit.
“The implementation of Solvency II in the UK has come at a considerable cost. Industry and the PRA do not appear to be aligned on some key issues, including the impact on consumers. They should agree what is best for UK industry and consumers as a matter of urgency.
“They should develop a roadmap that provides a prudent regulatory structure without stifling competition and innovation.
“Such a roadmap should both inform the Brexit negotiations and reflect the opportunities afforded post Brexit to develop the international competitiveness of the UK insurance industry.”
