Bank of England sets out reforms to Insurance Capital Rules for Boosting Investment

The Bank of England The TThe hursday morning set off a reform of capital rules for insurers to “unlock tens of billions of pounds” for investments in the economy.

The Solvency II rules were inherited from the European Union and their reform is seen by the insurance industry and by lawmakers who supported Britain’s exit from the bloc as a “Brexit dividend” to unlock billions of pounds of investment.

It is important to note that this so-called matching adjustement ensures the insurers have enough assets to fund future payments on pensions, policies and other benefits.

An insurer can reduce capital requirements by investing in assets that produce cash when the time is right, provided they receive a discounted rate.

“We propose to adjust regulations to reflect the decisions made by the government about the level of financial resilience that should be required of insurance companies,” Bank of England Deputy Governor Sam Woods said in a statement.

“These proposals aim to promote policyholder protection while enabling the annuity sector to meet its commitments to the government to increase investment in the UK economy.”

The BoE was overruled by the government to get a lower discount. This will free billions to be invested in infrastructure, and to help move to a zero-emission economy.

The BoE said the limit it has proposed, along with other proposed reforms, would not stop insurers from meeting their stated commitments for “unlocking tens of billions of pounds for potential investments at implementation.”

BoE plans to release final rules and policy on matching adjustments in the second quarter next year. The date for implementation is 30 June 2024.

The Solvency II Review said all changes relating thereto would be implemented on the 31st December 2024.

Reporting by Huw J. Jones, Muvija M. Editing by William Schomberg