Best’s Commentary: Solvency II reform in the UK should lead to restructuring of the investment portfolio

LONDON–(BUSINESS WIRE)–Plans to reform the Solvency II framework for UK insurers will allow life insurers in the country to invest in a wider range of assets and will likely lead to a higher proportion of UK-based assets that underpin the UK annuity portfolio, according to a new commentary from AM Best.

The Comment by Best“UK Solvency II Reform Likely to Drive Investment Portfolio Restructuring”, notes that the expansion of asset options for UK annuity purchasers, described in a statement from the UK Treasury, should help the industry find assets to meet the expected strong demand for pension risk transfer solutions in the coming years.

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

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

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