Tuesday 23 February 2021 12:01 am

Post-Brexit regulatory changes for the City could free up £95bn, says study

The UK could free up £95bn for City insurance firms to reinvestment into the economy if the Treasury waters down the EU’s Solvency II regulations post-Brexit, according to a new study.

The Association of British Insurers report, researched by accounting firm KPMG, recommends easing the cap on how much capital insurance firms must hold at any one time to stave off insolvency in case of an economic downturn.

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The report said the formula that determines the cap “is overly-sensitive to very low interest rates” and that it forces “insurers to hold billions of excess capital for no purpose”.

Interest rates are currently at record lows across the globe, with the Bank of England’s base rate at 0.1 per cent.

The report also recommends that the UK makes it easier for firms to invest in a wider range of financial instruments by changing the matching adjustment mechanism.

The report argues that current rules prohibit investment in high-growth companies, such as green energy firms, that are a safer long-term bet than is recognised by the current framework.

ABI director general Huw Evans said: “The insurance and long-term savings industry can do so much more to help our economy and society but only if Solvency II is made fit for purpose for the UK.

“Our sector can invest an amount equivalent to the budgets of eleven UK government departments in renewable energy, economic recovery and infrastructure investment if these reforms are made – with policyholders still having one of the best protected systems in the world.

Read more: Brexit is ‘remarkable opportunity’ to change City regulations, say MPs

“Even with these changes, the UK market will still be one of the most highly regulated sectors in the world.”

The Treasury was contacted for comment.