Government announces Solvency II reform to unlock wave of investment
The government revealed plans to overhaul Solvency II rules yesterday in a bid to unlock “tens of billions of pounds” of investment from the UK’s insurance giants.
In the Autumn statement, the Chancellor said the government would look to make the UK the world’s “world’s most innovative, dynamic and competitive global financial centre” by pushing ahead with plans to release cash locked up at insurance firms under the current EU-era rules.
In the consultation response published shortly after Hunt’s statement, the government outlined plans for the new “Solvency UK” regime and said the “financial services regulatory framework must adapt to the UK’s new position outside of the European Union”.
Ministers are now poised to legislate to change the risk margin for long term life insurance firms and broaden the ‘matching adjustment ‘ eligibility criteria, in a bid to free up capital.
Andy Briggs, the boss of Phoenix Group, which has around £270bn assets under administration, told City A.M. today that the firm “very much welcomes what is being proposed” and the firm would now be in a position to pump cash into illiquid projects like infrastructure.
“We’ve already got £40bn of existing annuities where we’d like a higher proportion invested in these types of [assets], so the money’s absolutely there and ready to go, all of it while staying very safe and secure for policyholders,” he said in an interview.
He added that the firm would be looking to invest £40 to 50bn in “green infrastructure, levelling-up social housing-type assets” over the next five years.
Solvency II reform has been at the heart of the government’s plans to spur a ‘Big Bang’ in the financial services industry by loosening the capital buffers on the UK’s insurance giants.
The plans have been the subject of dispute with the Prudential Regulation Authority, however, over concerns it could harm policy holders.
In a statement today, the PRA backed down the plans and said it would now roll out the measures.
“Following the government’s announcements today about its plans to legislate reforms to Solvency II, the key decisions will now be for Parliament and we will implement those decisions faithfully,” a spokesperson said.