(Reuters) – The reform of insurance capital rules should not be a “free lunch” that puts pensioners and policyholders at risk, Bank of England Deputy Governor Sam Woods said on Friday as the industry debates rule changes that are potentially delayed by political unrest.
Changing insurance rules called Solvency II, which was inherited from the EU, is seen by the government as an important Brexit “dividend” for the UK’s financial sector, but the pace and content of the reform have frightened insurance companies.
The EU is further ahead in approving similar changes.
A draft UK law would be presented this month to implement insurance and other reforms, but political unrest in Britain has left the country without a finance minister as a new prime minister has been elected.
“The world will not implode if we do not have a city minister in a day or two. I think we will have one very soon,”; Woods told an online event.
The BoE has proposed amending three key elements of Solvency II to make it easier for insurance companies to invest in long-term assets as infrastructure to help the UK achieve its net zero targets.
Woods said there is general agreement on two of them, but there is opposition to the third, which relates to recalibrating the so-called matching adjustment, which allows insurance companies to report in advance some of the income they expect as capital. to earn on their assets in the future.
“In our view, a package that does not address the issues we have identified with the matching adjustment would be seriously unbalanced,” Woods said.
It would simply remove pieces of regulation that insurance companies do not like, he said, adding that MA already accounts for capital relief corresponding to two-thirds of the entire capital base in the life insurance industry.
“I’m worried that some may consider such a thing as a free lunch, but in fact, less capital, fewer controls and fewer restrictions on assets, without any measures to strengthen the part of the regime where it is needed, means more risk for pensioners. and other policyholders, ”he said.