21 July 2022

FT: Insurers issue Solvency II warning as post-Brexit reforms of City unveiled

UK insurance companies have warned that a proposed post-Brexit overhaul of the rules governing the sector would increase capital requirements for some providers and could scupper government hopes for an “investment big bang” from the reform.

Ministers hope the overhaul of the so-called Solvency II regime, inherited from the EU, would allow insurers to put tens of billions of pounds into UK infrastructure. But the Bank of England’s Prudential Regulation Authority, which supervises the sector, said earlier this month the overhaul cannot be a “free lunch” for the industry and that the rules would need to be tightened in other areas.

In its reply to the consultation, which closes on Thursday, the Association of British Insurers welcomed plans to reduce the risk margin, an extra capital buffer. But it added that for life insurers, the PRA’s proposed changes to how their liabilities were calculated would more than offset this benefit. In contrast to the government’s claims that the reforms would reduce the amount of capital life insurers would have to hold, the ABI warned that the overall effect would force them to hold more and could hit customers, or mean less investment in productive assets.

“The current proposals . . . would risk penalising pension customers as a result of the increased costs associated with the proposed reform,” said Hannah Gurga, ABI director-general. The Treasury said it was “determined” to ensure the rules worked “in the best interests of the UK”, adding that it was working closely with regulators and the industry to redesign them. The PRA declined to comment. The long-awaited financial services bill, which was introduced on Wednesday in what chancellor Nadhim Zahawi described as a “landmark day”, paves the way for reforming the Solvency II regime...

 more at FT

© FT plc