Insurance big bang to fire up UK investment

Billions of pounds could be unleashed to invest in Britain as the Chancellor moves to free the insurance sector from its EU shackles.

In documents published alongside the Autumn Statement, Jeremy Hunt confirmed he would push ahead with reforming complex regulations known as Solvency II.

Insurers said the 2016 rules, which dictate how much capital they must hold to cover potential losses and where that money could be invested, were too cumbersome, discouraging them from investing in projects such as wind farms, and instead forcing them to put money into ‘safer’ but lower-yielding assets such as bonds.

In an effort to rally the City behind his Autumn Statement, the Chancellor invoked the ‘Big Bang’ wave of deregulation kicked off by his 1980s predecessor Nigel Lawson

Now the Treasury will reduce the ‘risk margin buffer’ by 65 per cent for life insurers and 30 per cent for general insurers. 

But it overruled the Bank of England’s suggestions that the ‘matching adjustment’, which hands a benefit to life insurers who invest in assets which pay out at the right time to cover future liabilities, be tightened.

During the long discussions over Solvency II reform, the Bank has been worried that making the matching adjustment too generous could leave insurers and their customers more vulnerable in the event of a downturn.

In an effort to rally the City behind his Autumn Statement, Hunt invoked the ‘Big Bang’ wave of deregulation kicked off by his 1980s predecessor Nigel Lawson.

Hunt said: ‘Nigel Lawson’s Big Bang inspires us today but nearly 40 years on we must stay true to its mission to make the UK the world’s most innovative and competitive global financial centre.’

He said the Solvency II reform would ‘unlock tens of billions of pounds of investment for our growth-enhancing industries’.

Amanda Blanc, the boss of Aviva, said: ‘This is a very welcome boost for investment. 

We estimate reforms to Solvency II will allow Aviva to invest at least £25billion over the next ten years across the UK, including in critical areas such as social housing, schools, hospitals and green energy projects.’

Loic Bellettre, a partner at accountant EY, said the decision to overrule the Bank on the matching adjustment would be ‘a relief for annuity firms particularly, which would otherwise have faced significant increases and volatility in the level of capital required’.

The Bank of England’s Prudential Regulation Authority (PRA) said that it ‘supports the Government’s goal of promoting growth and productive investment, and has a primary duty to protect insurance policyholders’.

Following the commitment to reform Solvency II, the PRA said the ‘key decisions will now be for Parliament’.

This post first appeared on Dailymail.co.uk