Solvency II reforms will not be a ‘free lunch’ for insurance sector, Bank of England says
The Bank of England (BoE) has said its post-Brexit shakeup of the rules that govern the UK’s insurance industry will not be a “free lunch” for the sector, that puts policyholders at risk.
In a speech on Friday, Sam Woods, chief executive of the BoE’s Prudential Regulation Authority (PRA) said policyholders must be protected as the government pushes forwards with its planned Solvency II reforms.
The PRA chief said that if the reforms simply “loosen regulations which were overcooked by the EU, without tackling other areas where regulations are too weak, then we are putting policyholders at risk”.
The government’s planned Solvency II reforms are aimed at freeing up billions in investable capital, by reducing the sums insurers must hold in reserve to protect themselves from bankruptcy.
However, the government and the BoE have clashed in recent months over the extent to which the reforms should go, and the sums of money insurers should be required to hold on their books.
In his speech, Woods explained that the BoE is calling for 10 per cent to 15 per cent reduction in capital requirements, which free up sums of between £45bn and £90bn.
He noted that the BoE proposals have faced significant pushback from the insurance sector, with some insurers arguing capital requirements should be cut by up 90 per cent.