Last time we looked at what Solvency UK is and why it matters to insurers and long-term savings institutions. In this, the second of our Solvency UK series, we’re offering practical advice to UK financial institutions to determine whether they’re ready for the changes.
The transition from Solvency II to Solvency UK is set to reshape how financial services institutions manage risk, capital and compliance in the UK. While the upcoming reforms promise to simplify some areas and make the regime more proportionate, they also introduce some new requirements and expectations and will mandate insurers and long-term savings institutions to assess how the changes affect their organisation’s strategy, systems and people.
Whether you’re part of a large group or a smaller provider, now is the time to take stock. Here we offer a practical framework to help you assess your readiness across four critical areas: data governance, capital modelling, operational planning and compliance preparation.
Solvency UK isn’t just about meeting compliance deadlines, it’s about ensuring your business is best positioned to take advantage of the opportunities that the reforms bring, while effectively managing the associated risks.
Data Governance
Reliable, high-quality data is the backbone of effective risk management and regulatory compliance. Under Solvency UK, insurers will be expected to show clearer traceability, accountability and quality control when it comes to the data they use for reporting and decision-making.
Key questions to ask:
- Have we conducted a recent review of our data governance framework?
- Do we know where our critical data originates?
- Is the data consistently accurate and complete?
- Can we clearly track how key data flows through our systems?
- Are the roles and responsibilities for data ownership well defined?
- If it was challenged, would we be able to stand behind it confidently?
Capital modelling
Solvency UK aims to simplify the matching adjustment roles, broaden the eligibility of assets and increase the flexibility in capital modelling, especially for smaller firms. However, regardless of size, all insurers will need to revisit their modelling assumptions and question whether they remain fit for purpose.
Key questions to ask:
- Have we started to factor the reforms into our internal model or standard formula calculations?
- Are we modelling the proposed changes to matching adjustment eligibility correctly?
- How do the proposed changes affect our capital requirement and risk appetite?
- Can our modelling tools keep pace with regulatory change in the future?
- Have we tested how our solvency position might shift under the new rules?
Scenario testing can help you to identify areas of strength and vulnerability. Understanding the potential impact on your solvency ratio is important, not just for compliance but for informing business decisions around pricing, product development and investment strategies. Even if the technical detail of Solvency UK is still evolving, building agility into your capital modelling now will help to ensure a smoother transition later.
Operational planning
Solvency UK is not just a technical or compliance exercise, it also has strategic and operational implications that go beyond actuarial and risk teams and into the realms of business strategy, investment planning, project management frameworks and governance structures. It’s important that insurers don’t leave the responsibility for reform readiness in the hands of the compliance team alone.
Key questions to ask:
- Have we incorporated Solvency UK reforms into our business strategy, investment planning and ORSA processes?
- Have our senior management team been fully briefed on the reforms and the strategic implications of the change?
- Have we assessed the impact on product pricing, reinsurance arrangements or investment strategies?
- Is our programme management office equipped to oversee the reform transition?
- Do we have a programme structure in place to co-ordinate internal efforts?
- How might our operating model need to evolve?
Even if you’re still waiting for final guidance, it’s worth putting a project structure into place. This might include identifying a programme lead, establishing a working group or sketching out a timeline of key milestones. A proactive approach can provide focus and accountability and help you to respond more quickly and efficiently when the rules are finalised.
Compliance preparation
While the PRA continues to finalise the details, insurers are expected to begin their preparations. Early compliance planning will be key to staying ahead of regulatory updates and understanding what might need to change internally.
Key questions to ask:
- Are we closely monitoring PRA updates and industry consultations?
- Have we got a roadmap for implementing the required changes, including timelines and accountability?
- Have we mapped out the likely changes to reporting and compliance requirements?
- Are we proactively engaging with the regulator on areas of uncertainty?
- Are we confident that our current processes will be flexible enough to adapt?
Being proactive doesn’t mean that you’re overcommitting before the rules are finalised, it simply means that you’re informed and are ready to respond.
Readiness assessment
Solvency UK is more than just a regulatory update, it’s about making sure that insurers and long-term savings institutions have the clarity, control and capability to operate confidently in a changing environment. Taking a structured approach to self-assessment can help organisations to prioritise actions and avoid last-minute surprises.
Creating a structured assessment of your Solvency UK readiness can help to turn an abstract challenge into a concrete action plan. While each organisation’s priorities and timelines may differ, the fundamentals remain the same – clarity of data, agility in modelling, integrated planning and proactive compliance.
You don’t need a complex framework to begin with. A simple traffic-light system (red – needs urgent attention, amber – some gaps, green – on track) across each of the four areas we’ve mentioned can help you to visualise where you are at present and where to focus next. Sharing this assessment with key stakeholders, including board members, can also help to secure the necessary resources and focus.
The most important thing, however, is to begin the conversation. Engage the right people, look at the data and consider the bigger picture. With the right planning, Solvency UK can become an opportunity to streamline operations and enhance your approach to risk, not just a regulatory hurdle to overcome.
Summary
For many insurers, Solvency UK represents a positive shift, provided that they’re prepared. By reviewing your readiness across data governance, capital modelling, operational planning and compliance preparation, you can create a clear action plan and ensure that your business is ready to adapt.
Do you need assistance with your Solvency UK planning? Contact Brighter Consultancy for more information about how we can help.
