Insurers/Solvency II: relaxing rules will not enhance competitiveness


Almost a year later, the Brexit show receives various reviews. Some industries, such as insurance, which were hoping to promote significant deregulation, had to wait longer than expected. The story of Westminster’s increased competitiveness was taken politely by vigilant regulators such as the Prudential Regulation Authority and insurance supervisors. The latter is right to be careful.

This happens when the UK government is making big plans for decarbonization of the economy. In this respect, there is little deviation from the EU’s goals. But Brexit needed to add agility to its UK efforts.

The government, eager to encourage local investment in renewable energy infrastructure, has demanded that some of the hundreds of billions of pounds needed for pension funds be invested. In August Open letter Prime Minister Boris Johnson lamented that 80% of the defined contribution pension plan is included in listed securities. That’s just one-fifth of the UK’s wealth.

Insurance companies such as the Phoenix Group would like to help.Phoenix is ​​that £ 50 billion in the pot, About 15% of assets under management. However, changes in Solvency II regulations regarding insurers’ capital requirements can delay it.

To make some of the illiquid investments that the government has in mind, adjustments that match the capital base are needed to compensate for the additional risks. To make matters worse, it can take several months to get approval for these changes.

That is where competitiveness comes into play. International asset owners, such as the Canadian Pension Plan, also want to invest in UK infrastructure. But without the same regulatory capital obstacles, CPPs can move faster. The UK portfolio alone weighs over £ 10 billion. By having to reduce matching capital, UK insurers can better compete with their rivals over these assets.

Not surprisingly, PRA looks at things a little differently.Head of Regulatory Authority earlier this year Sam Woods He told the insurance company what he thought about allowing the release of capital, or at least some dilution of the rules. not much. He calls the estimate of the capital available for investment a bit “speculative”.

Governments asking pension managers to go that extra mile face regulators who are afraid to give financial institutions an inch, and they will take more than that mile. That’s not a bad thing. History supports prudence.

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