Bank of England Proposes Insurance Reform To Boost Investment

The Bank of England announced on Thursday a revision of capital regulations for insurers that will “unlock tens of billions of pounds” for economic development.

The Solvency II rules were inherited from the European Union, and their modification is considered as a “Brexit dividend” to free billions of pounds of investment by the insurance industry and MPs who supported Britain’s exit from the bloc.

The so-called matching adjustment tries to ensure that insurers’ assets generate enough revenue to fund future policy and pension payouts.

Investing in a cash-generating asset at the correct time allows insurers to reduce capital requirements, subject to a discount.

“We propose to adjust regulations to reflect the decisions made by the government about the level of financial resilience that should be required of insurance companies,” Bank of England Deputy Governor Sam Woods said in a statement.

“These proposals aim to promote policyholder protection while enabling the annuity sector to meet its commitments to the government to increase investment in the UK economy.”

The government overruled the Bank of England, insisting on a less onerous discount in order to free up billions of pounds for infrastructure investment and the transition to a net-zero economy.

The Bank of England claimed that the proposed cap, coupled with other measures, would not prevent insurers from reaching their stated commitments to “unlock tens of billions of pounds for potential investments at implementation.”

The Bank of England stated that it intended to publish final policy and guidelines on the matching adjustment in the second quarter of next year, with an implementation date of 30 June 2024.

It stated that all further adjustments relating to the Solvency II review would take effect on December 31, 2024.

Leave a Reply