UK life insurers will be freed up to invest “tens of billions” of pounds more after the decision to scrap the EU’s Solvency II regulation post-Brexit, City minister John Glen has said.
Glen, writing in City A.M., today said changes to the much-maligned EU regulation will unleash investment into “growth-supporting infrastructure like wind farms and social housing” by reducing the amount of capital that insurance firms must hold in reserve by up to 70 per cent.
Glen announced earlier this week that Solvency II would be the first major EU regulation to be eased as a part of the UK’s shake-up of its financial services rulebook post-Brexit.
A government taskforce last year estimated the retained EU law – which makes insurance firms hold a certain amount of capital to ensure they can survive potential economic shocks – is holding back £95bn of investment into the British economy.
Glen said the government would slash Solvency II’s risk margin, which will ensure firms need to hold less capital in reserve.
He said there would be a cut of between 60 to 70 per cent for life insurance firms, while the regulation will also be relaxed to allow firms to invest in long-term assets like infrastructure.
There will also be a “reassessment of how insurers allow for the risks they are exposed to from their investments” and a “major cut in the red tape and administrative burdens on insurers”.
“I expect there to be a material release of the capital currently held by life insurers, allowing them to put tens of billions of pounds into long-term productive assets,” Glen said.
“Very importantly, I’m also confident that these reforms will safeguard policyholder protection.”
The British insurance industry has just under £2 trillion of assets under management and is the largest in Europe.
Bank of England governor Andrew Bailey last year said Solvency II was “never well suited” to the UK’s insurance industry and called it needlessly “cumbersome”.
Labour shadow business secretary. and former shadow City minister, Jonathan Reynolds earlier this month said he would support easing Solvency II at a UK Finance event.
“When I was ever asked ‘what do you think a potential benefit of Brexit might be’, I would often cite Solvency II as something we could have done better,” Reynolds said.
“I think there is an argument, not for deregulation, but for regulation that would better free up capital for firms to make investments.”