United Kingdom


  • Service: Advisory
  • Industry: Financial Services
  • Type: Press release
  • Date: 05/03/2012

Final Solvency II proposals could directly impact the UK pensions market and wider macro economy, warns KPMG report 

  • Increased capital requirements could make annuities uneconomical for insurers
  • Wider economy to suffer as insurers reassess their investment portfolios
  • KPMG urges the European Commission to re-examine proposals 

A KPMG report, Evolving Insurance Regulation, highlights concerns that the final Solvency II proposals could negatively affect the pensions market and wider economy in some European countries.


The final requirements on the matching premium and counter-cyclical premium - which determine the way insurers’ liabilities are calculated - are the two issues KPMG believes will have the greatest impact on European firms’ capital requirements and consequently the annuities market.


Phil Smart, UK head of Solvency II at KPMG, commented: “In the UK, this could mean that the return on annuities falls to a level which consumers find unacceptable. Insurance firms may then decide such business is uneconomical. This in turn would be unwelcome news for pensioners, who could be forced to accept the investment risk on their pensions savings, as insurers will increasingly be expected to offer unit linked pension products.”


Commenting on the broader impacts on the macro economy, given insurers are key players in the bond market, Phil Smart continued: “Many European insurers have been significant investors in infrastructure and real estate funds, which provide reliable and stable cash flows, consequently providing a good match to the cash outflows on annuity type products. By imposing high capital charges on these investment classes for regulatory purposes, the risk-adjusted returns may become unattractive and insurers needing additional solvency will likely choose to change their investment portfolios. This could potentially lead to new funds for investment drying up, which could impact the wider European growth agenda. 


“In addition, unless the capital charges basis applied to asset classes is changed, many insurers may look to move out of long-term corporate debt into lower risk, and lower return, investments. Overall, the knock-on effect to the wider economy cannot be underestimated.”


Phil Smart concluded: “Re-examination of the European Commission’s proposals on charges on investment products, combined with another quantitative impact assessment, would be prudent.”





Notes to editors:


Evolving Insurance Regulation – Time to get ahead is the part of a series from the KPMG Regulatory Centre of Excellence on evolving regulation in the global financial services sector.


Copies of the full report are available on request


Regulatory Centres of Excellence

KPMG has Financial Services Regulatory Centers of Excellence in London (for Europe and the Middle East), in New York (for the Americas region) and in Hong Kong (for the Asia Pacific region).  The Centers bring together regulatory expertise from across KPMG’s global network to provide valuable insight to clients on regulatory developments locally and globally in the fields of banking, insurance, and other areas of financial services, and to provide advice on the strategic, compliance and business implications.


For further information please contact


Monica Fiumara, Senior PR Manager, KPMG
Tel: +44 (0)20 7694 5674 / Mobile: +44 (0)7901 105180
Email: monica.fiumara@kpmg.co.uk

KPMG Press Office: 020 7694 8773

About KPMG

KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with over 11,000 partners and staff.  The UK firm recorded a turnover of £1.7 billion in the year ended September 2011. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 150 countries and have 138,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.  KPMG International provides no client services.