The current design of the SII risk margin is too interest-rate sensitive and too high, particularly in the current low-interest rate environment. We believe reform, and an overall reduction, in the risk margin is desirable and can be done whilst keeping an appropriate balance between policyholder protection and cost.
The Matching Adjustment (MA) is vitally important to UK insurers, UK pension schemes and individuals. Without it, annuity prices would increase, and it would simply not be affordable for many pension schemes to buy-out with an insurance company. The IFoA fully supports the continued inclusion of the MA; the MA has successfully helped reduced
procyclical investment behaviour, such as during the stressed conditions in early 2020. However, we believe that the MA framework needs to incorporate more pragmatic flexibility, without a lowering of regulatory standards.
We favour incentivisation of ‘green’ investment rather than overly penal disincentives for ‘brown’ asset classes, noting that sectors considered ‘brown’ must also be part of the solution to the challenges of climate change.
Author(s): Institute and Faculty of Actuaries
Publication Date: 19 February 2021
Publication Site: Institute and Faculty of Actuaries