The HM Treasury consultation document on Solvency II proposes reducing capital buffers to encourage insurance companies to invest in assets that the Government considers desirable.
UKSA’s response (here) explains that UKSA is seriously concerned by the proposals.
Very briefly, the proposed ‘reforms’ are intended to loosen capital rules for insurance companies to release cash for infrastructure projects. The proposals have made headlines in the Financial Times and have triggered a battle with the Bank of England, which seeks to defend its regulatory autonomy, and were even referred to in the Conservative Party’s leadership hustings.
They have the potential to significantly increase the risk of insurance companies failing to meet their obligations to policyholders, and we think they look like an attempt by Government to “stack” the regulatory provisions so that insurance companies invest more in assets that the Government wishes to favour.
In our response we wrote:
“It is an essential requirement for a society that believes in economic freedom that insurance companies be able to invest their funds in the best interests of their policyholders (the first priority) and their shareholders (the second priority). Any attempt by the Government to direct insurance company investments, either by dictat or by manipulating insurance company regulation, is incompatible with the obligations insurance companies owe to their policyholders and investors.”
The response was prepared by our Policy Team, with Mohammed Amin as the lead author and submitted to HMT on 21 July 2022.
