In a wide-ranging speech regarding Solvency II by the director of life insurance of the UK Prudential Regulation Authority on 17 February 2016 he said that one of the risks of a prudential regime that permits firms to calculate their own capital requirements is that the system over time is gamed.

He referred to the experience in the banking sector before Basel II where, he said, risk weights bore an increasingly tenuous relationship with real levels of risk on balance sheets.

The PRA will monitor trends and developments in insurers’ model capitalisations to guard against any pronounced downward drift. He also warned against life insurers undertaking transfer of longevity risk by way of reinsurance for reasons other than seeking genuine risk transfer.

If you want some insight into the PRA’s attitude to Solvency II, have a look at the full speech here.