He added: “Phoenix plans to invest £40bn to £50bn in illiquid assets and sustainable investments over the next five years to support house building, green energy, and local communities across the country without compromising policyholder protection in any way.”
Meanwhile Tracy Blackwell, chief executive of the Pension Insurance Corporation (PIC), said the announcement “gives us the stability to support the Government’s objective of investing in productive assets whilst ensuring that policyholder pensions are secured to the highest standards.”
The Treasury acknowledged on Thursday that there was “no consensus” surrounding the so-called matching adjustment mechanism, which covers long-term investments.
The matching adjustment mechanism allows life insurers to match predictable cash flows from assets against liabilities and get a capital benefit as a result. However, the Treasury has brushed aside concerns raised by the PRA on this issue to push ahead with reform.
Under the new proposals, the regulator will be given tools to monitor this area by requiring insurers to carry out regular stress testing and by making senior managers formally vouch that their company’s fundamental spread – an aspect of the matching adjustment – is sufficient.
The Government will also cut the risk margin, an extra capital buffer that companies are required to hold, by 65pc for life insurers and 30pc for general insurers.
Industry chiefs argue that Solvency 2 rules as they currently stand discourage them from investing in projects such as wind farms, instead forcing them to put money into low-yielding sovereign and corporate bonds.
Industry leaders have said they want to invest more capital in illiquid assets such as other infrastructure projects, but their hands have been tied as a result of Solvency 2 restrictions. Insurance has been touted for years as an industry that could benefit from relaxing the EU rules introduced to make financial institutions safer after the 2008 financial crash.
The reforms could still take years to implement as the Government has yet to legislate on its proposals, while the PRA will also be required to carry out further consultations before the reforms can be enforced.
Earlier this week, The Telegraph reported that the first segment of the reforms will not be implemented until the end of 2024, raising the prospect that the changes will drag on beyond 2025.
A Bank of England spokesman said: “The PRA supports the government’s goal of promoting growth and productive investment, and has a primary duty to protect insurance policyholders.
“Following the government’s announcements today about its plans to legislate reforms to Solvency 2, the key decisions will now be for Parliament and we will implement those decisions faithfully.”
