b'Insurance Regulatory | UK/Brexit The regulators have focused on four key driversIn its response to the Treasury Select Committee which they believe can lead to harm, namely pur- report on Solvency II, the PRA committed to consid-pose, leadership, approach to rewarding andering the feasibility of simplifying the transitional managing people and governance. The themes themeasure on technical provisions (TMTP) as it FCA is exploring include psychological safety overrecognized the burden of maintaining multiple fear (which includes safety to blow the whistle whensystems for recalculation of the TMTP. In 2020 the wrongdoing is encountered in firms), leadership andPRA consulted on and published final policy to management capabilities, incentives and recognitionprovide further clarity on the consistency of Solvency and firms assessment of culture. One particularlyI and Solvency II methodologies, and provided notable development in this area in 2020 was theadditional guidance for firms seeking to simplify the regulators increasing willingness to take action inrecalculation methodology of the TMTPs.relation to non-financial misconduct, or exampleFurther supervisory action was taken in relation to bullying or sexual harassment, which gave rise to athe TMTP as a result of COVID-19. Early in the crisis, number of enforcement cases as well as otherthe PRA recognized that the significant change in regulatory interventions.the operating environment would cause some firms Solvency II Reformsto experience a material change in risk profile. The PRA invited firms to apply to recalculate their TMTP The PRA has an ongoing focus on reforming thein light of significant changes in interest rates that prudential regime regulating the insurance industry,occurred in March 2020. In any application for which is based on Solvency II. As an example the PRApermission to recalculate TMTP, the PRA expects considers risk margin to be a first priority for thefirms to be able to demonstrate how the current industry. The PRA has continued to hold the view thatenvironment has caused a material change in their the risk margin is too sensitive to the level of interestown individual risk profile.rates, and it is therefore too high for long duration liabilities in the current interest rate environment. As aOn October 2020 HM Treasury published Review consequence of the risk margin, UK insurers haveof Solvency II: Call for Evidence. Its intention is to reinsured the majority of new longevity exposureensure that the UKs prudential regulatory regime offshore. In January 2020 the PRA clarified its expec- for the insurance sector is better tailored to sup-tations of firms undertaking these transactions. port the unique features of the sector and the UK regulatory approach. The risk margin is included as an area for review. gMAYER BROWN 83'