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Risk Margin

This Research Working Party proposed both theoretically sound and practical solutions to the current Risk Margin limitations. It closed in December 2019.


The risk margin and its calibration are prescribed in European Directives and were transposed into UK law in 2015. With falling interest rates in the UK, in particular since Solvency II has come into force, the true cost of the risk margin, its volatility and the risk management challenges it produces have come to light. 

The 2017 Treasury Select Committee (TSC) on European Insurance Regulation placed considerable emphasis on the costs of the risk margin to UK insurers. The PRA has publicly acknowledged various shortcomings in the methodology, however, believes these are best tackled at European level and has therefore not supported ‘quick-fix’ proposals by industry to date. Additionally, Brexit provides an opportunity for the UK to amend its rules on risk margin unilaterally, however there is a concern that inconsistency with the European Directive post-Brexit would put UK Solvency II equivalence at risk. At the same time, European regulators are due to review aspects of Solvency II regulation.

There are therefore two key areas to be addressed by the WP:

  • What can be done to fix know reporting (IFRS, margins, etc.) issues with the RM, either now or post-Brexit?
  • What should be the purpose of the RM for solvency reporting, and how can that purpose best be fulfilled? Are there considerations that are also relevant to shareholder reporting (IFRS, margins, etc.)?

The first of these is very practical in nature, seeking to find pragmatic solutions to known issues with due regard to the political context. The second is more theoretical in nature, tackling fundamental questions such as the relative merits of transfer value and obligation-based approaches. 


  • CILA May 2018 Risk Margin Debate
  • Sessional meeting and sessional paper - London, 9 September 2019
  • Sessional meeting and sessional paper - Edinburgh, 7 October 2019
  • Paper for British Actuarial Journal (focussed on the theoretical issues)
  • Input into consultation responses and further submissions to the TSC where required
  • Promotion of awareness of issues with the RM
Chair: Chris March until April 2018, Andy Pelkiewicz from May 2018
Membership: 7
Established: 2017

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