He said that the regulation of insurance companies should not automatically follow the blueprint of that for banks. He also highlighted that Solvency II has achieved good results to date; but there is still some way to go.
Lord Myners has issued a warning that new European capital rules for insurance companies could discourage people from saving for retirement by cutting the value of pensions.
It is the first time a member of the government has spoken out publicly about the issue. Since last year some industry members have been claiming that the rules, which are to take effect in 2012, could cut the value of defined contribution pension schemes by up to 20 per cent because of the effect on their annuity businesses.
"Capital must be sufficient to provide security and assurance, but setting capital at an excessively conservative level will have very real consequences in terms of dis-incentivising retirement provision and adversely impacting pensioner income," Lord Myners said.
The arguments around how the changes to the discount rate that insurers use to value their future payouts to pensioners are highly technical, but Lord Myners said that for all the complicated talk, "we must be crystal clear that the risk here is increased costs for pension businesses, and ultimately pensioners".
"We absolutely cannot allow this to happen," he added. "Government is committed to ensuring that these regulatory reforms do not unintentionally impact the lives and well-being of pensioners in the UK and elsewhere in Europe."
However, there are concerns that the proposals have become excessively conservative, as supervisors have reacted to the financial crisis. For UK life insurers, there is particular concern over annuity businesses, which provide incomes to pensioners. The rules demand that insurers use a rate to calculate the future costs of these promises that makes them look much more expensive than at present.
Responding to a speech by Lord Myners, Financial Services Secretary to the Treasury at the ABI, on Government’s plans for responding to Solvency II, Peter Vipond, Director of Financial Regulation at the ABI, said:
“Lord Myners is right to identify the huge contribution insurers make to society and the economy and the importance of the world-leading UK sector. We welcome that the Government has now recognised how vital the Solvency II directive is for an effective UK insurance sector operating in Europe and the consumers it serves, including the value of the international competitiveness of the UK's wholesale market.
“We agree with Lord Myners there is much left to do and are pleased with his promise that he will work tirelessly to ensure Solvency II is reformed to enhance the strength of the UK industry. UK insurers are firm in their commitment to develop a successful Solvency II and will continue to work with the Treasury, FSA and European insurance colleagues to make sure this reform delivers on its promise to create a stronger future for the insurance industry.”
© Financial Times
Key
Hover over the blue highlighted
text to view the acronym meaning
Hover
over these icons for more information
Comments:
No Comments for this Article