UK Govt plans to liberate 15% of life insurers’ capital

Written by Adam Cadle

22/02/2022

The UK Government plans to implement a material capital release by as much as 15% of the capital currently held by life insurers in order to allow more investment in long-term assets such as infrastructure, Economic Secretary to the Treasury John Glen has said.

Speaking at the ABI’s annual dinner this week, Glen said this was part of the government’s plans to seize Brexit opportunities and slash red tape through bold reforms to Solvency II. Adding a material capital release into the regulation, Glen said, would allow insurers “to put tens of billions of pounds into long-term productive assets, with multiple benefits country-wide”.

The proposed overhaul of insurance sector regulation also includes a substantial reduction in the risk margin, including a cut of around 60-70% for long-term life insurers. Glen also said there will be a more sensitive treatment of credit risk in the matching adjustment, and a meaningful reduction in the current reporting and administrative burden on firms.

Responding to the announcement, ABI director of regulation Charlotte Clark said: “We welcome this announcement outlining the next steps of the Solvency II review.  We have long advocated for meaningful reform that fully meets the Government’s objectives and helps industry play an even larger role in the levelling up agenda and the transition to net-zero.

“This announcement is a positive step that sees us well on the way to ensuring that we have a package that provides additional investment in the UK, without undermining the high standards of policy holder protection we have. 

“We look forward to continuing close collaboration with the Government, Her Majesty’s Treasury and the Prudential Regulation Authority to ensure that any final package of reform meets all of these stated objectives.”

The Government will publish a full consultation document on proposed UK reforms to Solvency II in April 2022. This will be followed by more detailed technical consultation by the PRA later in the year.

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