Billions of pounds could be freed up for investment in the UK as the Chancellor moves to free the insurance sector from EU shackles.
In documents released with the Autumn Statement, Jeremy Hunt confirmed that he will be pushing ahead with the reform of the complex rules known as Solvency II.
Insurers said the 2016 rules, which specify how much capital they must have to cover potential losses and where that money can be invested, were too cumbersome, discouraging them from investing in projects like wind farms and instead forcing them to invest in “safer but low-yielding assets such as bonds.
Seeking to rally the city in support of his fall announcement, the chancellor cited the “Big Bang” wave of deregulation launched by his 1980s predecessor, Nigel Lawson.
The Treasury will now reduce the “risk margin buffer” by 65 percent for life insurers and 30 percent for general insurers.
But he rejected proposals from the Bank of England to tighten a “appropriate adjustment” that gives an advantage to life insurers that invest in assets that pay out at the right time to cover future liabilities.
During the lengthy discussions on the Solvency II reform, the Bank was concerned that an overly generous compliance adjustment could leave insurers and their customers more vulnerable in the event of an economic downturn.
In an effort to rally the city in support of his Fall Statement, Hunt cited the “Big Bang” wave of deregulation launched by his 1980s predecessor Nigel Lawson.
Hunt said: “Nigel Lawson’s big bang inspires us today, but nearly 40 years later, we must remain true to his mission to make the UK the world’s most innovative and competitive financial centre.”
He said the Solvency II reform “will unlock tens of billions of pounds of investment in our growth-producing industries.”
Amanda Blanc, head of Aviva, said: “This is a very welcome incentive for investment.
We estimate that the Solvency II reforms will enable Aviva to invest at least £25bn over the next ten years across the UK, including in critical areas such as social housing, schools, hospitals and clean energy projects.”
Loic Bellettre, partner at accounting firm EY, said the decision to reverse the Bank’s decision to make the adjustment would be “particularly a relief to annuity firms that would otherwise face significant increases and volatility in capital requirements.”
The Bank of England’s Prudential Regulation Authority (PRA) said it “supports the government’s goal of promoting growth and productive investment, and its primary responsibility is to protect policyholders.”
Following a commitment to reform Solvency II, the PRA stated that “key decisions will now be taken by parliament”.
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