UK life sector to maintain strong capital despite looser SII rules - Fitch

Written by Adam Cadle

08/03/2023

The UK life sector will continue to maintain strong capitalisation despite the government’s proposals to loosen Solvency II (SII) rules to release capital for insurers to invest more in long-term assets, Fitch Ratings has said.

Bank of England governor Andrew Bailey recently told a parliamentary committee reviewing the proposals that £14bn could be released. Bailey added that, for a firm just meeting the minimum SII requirements, this could equate to an increase in the probability of failure over a one-year period from 0.5% to 0.6%, a relative increase of 20%.

However, Fitch said most insurers maintain SII ratios well above the minimum requirements, which implies a much lower profitability of failure than 0.5%. “Moreover, while we expect insurers to deploy some of the capital freed up by the SII reforms into long-term investments, attracted by the prospect of higher returns, we believe they would stay within their existing risk appetites and avoid depleting their capital enough to jeopardise ratings.

“With solvency ratios at record highs, most insurers have strong capital headroom in their ratings,” it added.

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