Government reveals plans for Solvency II overhaul in bid to unlock funding boost
The Government has revealed its plans to overhaul EU-era insurance regulation today in a bid to unlock billions of pounds of investment from the UK’s insurance giants into infrastructure projects across the country.
Solvency II regulation introduced by EU lawmakers in 2016 has forced the UK’s insurance giants to hold huge amounts of cash on their books but government has been looking to overhaul the regulation in one of the first major rules shake ups to UK finance post-Brexit.
In a consultation paper published today, the Treasury has outlined proposals to slash the risk margin of insurers by around 60-70 per cent in a bid to free up capital, as well as changing credit risk measures to allow insurers to invest in a wider range of assets.
City Minister John Glen announced plans to overhaul Solvency II in a speech to the Association of British Insurers in February 2022, but today’s announcements puts flesh on the bones of the plan for the first time in a much awaited announcement by the industry.
“Today’s consultation demonstrates our commitment to go further and faster to deliver the benefits of Brexit,” Glen said today.
“Our reforms will unlock tens of billions of pounds of investment in the UK economy, spur innovation in the market while protecting policy holders – and will cement the UK’s position as a global hub for financial services.”
Insurers have so far thrown their weight behind the intention to scrap the rules, with boss of FTSE 100 insurance and investment giant Aviva telling City PM last month that changes would allow UK insurers to “play an even bigger role in supporting the UK economy by investing more of that in the country’s essential infrastructure – the colleges, hospitals, transport and renewable energy, which are critical to our future.”
Aviva shares received a boost today on the announcement, rising over one per cent, while Legal & General jumped over two per cent.
Ministers have suggested that changes to the Solvency II rules may also be able to flow into a wider range of assets and be channelled into growth investments in sectors like tech.
Speaking to the City PM Tech Weekly podcast in an interview published tomorrow, Digital Minister Chris Philp said government was assessing “two regulatory changes to unlock in the flow of institutional capital into UK Tech”.
“(We are) looking at Solvency II, which obviously affects insurance companies,” he said. “We think that is really important, because our view very strongly is that the UK financial institutional landscape, particularly about pension funds and life funds, is massively under allocated to tech compared to their European cousins.”
Insurance experts have queried the impact of Solvency II reform in freeing up investment into growth opportunities like tech however, saying that even after changes come into effect investment is likely to be limited to areas like infrastructure.