Insurers are predicting the Chancellor’s reforms to the Solvency II prudential regulatory regime will release tens of billions of pounds of capital to invest in infrastructure.
Today’s Autumn Statement relaxation of reserving requirements through reforms of Solvency II, permissible now the UK has left the EU, is designed to allow insurers more flexibility in investments.
The Association of British Insurers (ABI) predicts £100bn more can be invested in productive finance over the next decade as a result of the reforms.
The Government has proposed reducing the risk margin by 65 per cent for life insurers and 30 per cent for non-life insurers.
The ABI says it agrees with the Prudential Regulation Authority’s view that the risk margin was too large and sensitive to interest rates and says the changes proposed address both these issues.
The ABI says changes to the ‘matching adjustment’ rules will allow industry to invest in a wider array of assets and enable relevant insurers to include morbidity liabilities in matching adjustment portfolios.
Government has announced that the design and calibration of the fundamental spread will remain as it is today. This will lead to less volatile annuity prices and ultimately provide a more stable income for UK pensioners, says the ABI.
Chancellor Jeremy Hunt says: “I can announce we are publishing our decision on Solvency II, which will unlock tens of billions of pounds of investment for our growth-enhancing industries.”
ABI director general Hannah Gurga says: “We strongly welcome these changes to the Solvency II regime which will allow the UK insurance and long-term savings sector to play an even greater role in supporting the levelling up agenda and the transition to Net Zero.
Meaningful reform of the rules creates the potential for the industry to invest over £100bn in the next ten years in productive finance, such as UK social infrastructure and green energy supply, whilst ensuring very high levels of protection for policyholders remain in place.
More broadly, it will encourage a thriving and competitive industry which will ultimately benefit the UK economy, the environment and customers. This meets the objectives that HM Treasury set out to achieve and which the industry has supported throughout.
Barry O’Dwyer, ABI president and Royal London Group CEO says: “We all want to see an insurance sector that maintains the highest standards of policyholder protection and also contributes significant investment into UK assets and infrastructure that will benefit our customers, the environment and wider society. This has always been our goal and with these proposed reforms, we can achieve that ambition. The industry will continue to work closely with the Government, the Prudential Regulation Authority and other stakeholders as we move towards implementing the changes.”
Andy Briggs, CEO, Phoenix Group says: “The proposed reforms to Solvency II announced today present a very significant opportunity to ensure more private sector capital can be directed by insurers into the real economy and ensure we better mobilise the UK’s £3.4trn of pension wealth. These regulations are an important component of the changes needed to the wider UK investment landscape which will enable Phoenix to meet its ambition to invest more in the future. Phoenix plans to invest £40-50bn in illiquid assets and sustainable investments over the next five years to support house building, green energy, and local communities across the country without compromising policyholder protection in any way”.
Amanda Blanc, group chief executive, Aviva says: “This is a very welcome boost for UK investment. We estimate reforms to Solvency 2 will allow Aviva to invest at least £25bn over the next 10 years across the UK, including in critical areas such as social housing, schools, hospitals and green energy projects.”
The post ‘£100bn post-Brexit investment boost’ from Solvency II reform – Autumn Statement appeared first on Corporate Adviser.
