Best’s Commentary: UK Solvency II Reform Likely to Drive Investment Portfolio Restructuring

Plans to reform the Solvency II framework for U.K. insurers will allow the country’s life insurers to invest in a wider array of assets, and likely lead to a higher proportion of U.K.-based assets underpinning the U.K. annuity portfolio, according to a new commentary from AM Best.

The Best’s Commentary, “UK Solvency II Reform Likely to Drive Investment Portfolio Restructuring,” notes the expansion of asset options for U.K. annuity writers, outlined in a U.K. Treasury communique, should assist the industry in sourcing assets to meet expected high demand for pension risk transfer solutions in the coming years.

According to AM Best’s commentary, the proposed asset eligibility changes should not directly affect capital ratios. The likely impact of the changes will be focused on the restructuring of investment portfolios backing policyholder liabilities, as the range of eligible assets is widened.

AM Best will assess the outcomes for insurers’ asset portfolios within the relevant building blocks of its credit rating methodology, including the balance sheet, operating performance and enterprise risk management (ERM) assessments.

To access a complimentary copy of this commentary, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=326314.

AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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