For UK life insurers, one of the most contentious parts of the Solvency II regime is the risk margin. Following on from the risk margins implementation, it has come under extreme criticism for being too sensitive to the movements of interest rates, and too large. The criticisms are especially credible for annuity business, which is of great importance to the national system for retirement provision. The criticism sparked political interest, which then led to the risk margin being a large element of the Treasury Committee Solvency II inquiry. In response to the criticism, the working party was set up. Their brief is to look at both the solutions to the current problems and, for life insurers, the overall purpose of the risk margin.
