Smaller insurers to benefit from Solvency UK thresholds but ‘need to consider NDF rules’

Smaller insurers are to benefit from new Solvency UK thresholds, but need to consider non-directive firm (NDF) rules, Broadstone has warned.

The Prudential Regulation Authority’s (PRA) Policy Statement PS2/241 set out increased thresholds below which Solvency II regulations will not apply, with the gross written premium income threshold increasing by a further £10m from the £15m originally proposed.

Those insurers operating underneath the Solvency II thresholds can choose to operate under NDF rules, which are tailored to smaller firms, or remain within the Solvency II regime.

The PRA said it considers that NDF rules feature lower compliance costs than Solvency II, owing to simpler administrative requirements, reporting expectations and capital standards.

However, 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 said it 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.

Broadstone head of insurance consulting, Cara Spinks, 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.”

This article originally appeared on our sister title, Insurance Asset Management.

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