Bank of England sets out insurance reform to boost investment -September 28, 2023 at 02:26 am EDT

LONDON, Sept 28 (Reuters) – The Bank of England on
Thursday set out a reform of capital rules for insurers to
“unlock tens of billions of pounds” for investments in the
economy.

The Solvency II rules were inherited from the European
Union and their reform is seen by the insurance industry and by
lawmakers who supported Britain’s exit from the bloc as a
“Brexit dividend” to unlock billions of pounds of investment.

The so-called matching adjustment seeks to ensure that
assets held by insurers generate enough cash to cover future
payouts on policies and pensions.

Investing in an asset that generates cash at the right
time allows an insurers to cut back on capital requirements,
subject to a discount.

“We propose to adjust regulations to reflect the decisions
made by the government about the level of financial resilience
that should be required of insurance companies,” Bank of England
Deputy Governor Sam Woods said in a statement.

“These proposals aim to promote policyholder protection
while enabling the annuity sector to meet its commitments to the
government to increase investment in the UK economy.”

The government overrode the BoE to insist on a less
onerous discount to free up billions of pounds to invest in
infrastructure and help transition to a net-zero economy.

The BoE said the limit it has proposed, along with
other proposed reforms, would not stop insurers from meeting
their stated commitments for “unlocking tens of billions of
pounds for potential investments at implementation”.

The BoE said it planned to publish final policy and
rules on the matching adjustment during the second quarter of
next year, with an effective date of 30 June 2024.

All other changes related to the Solvency II review
would take effect on 31 December 2024, it said.
(Reporting by Huw Jones and Muvija M; Editing by William
Schomberg)