Talks about reforms that are expected to unlock £100bn from various strands of the financial services industry are reportedly taking place between the government and the Bank of England’s regulatory arm.
Following objections by the BoE’s Prudential Regulation Authority (PRA), HM Treasury (HMT) has initiated talks to “speed up” the reforms to the Solvency II regime inherited after the split from the European Union.
The HMT is in “active discussions” with the PRA and the insurance sector about potentially pushing the reforms through in two stages, the Financial Times reported.
Shares in insurance giants Aviva PLC (LSE:AV.), Legal & General Group PLC (LSE:LGEN), Just Group PLC (LSE:JUST), Phoenix Group Holdings PLC (LSE:PHNX) were all in the red on Friday, though so was much of the FTSE 100.
A final Solvency II proposal from the government department was announced alongside November’s Autumn Statement from chancellor Jeremy Hunt, with the government predicting it would see “tens of billions of pounds” unlocked across a range of sectors.
The UK and EU have both been looking at loosening the rules governing insurers’ regulatory requirements, including risk assessment and governance, which were felt to be acting as a disincentive for long-term equity investment.
Reforms included substantial changes in the calculations of risk margins for life insurers, with tweaks to ‘fundamental spreads’ and ‘matching adjustment portfolios’, essentially slashing the amount of capital that insurers must hold as an extra buffer against shocks.
However, the PRA wanted a more conservative approach and the concessions it was granted as part of the HMT proposal were thought by some industry figures to allow it to still force firms to be more cautious.
Today’s report suggests the government is looking at initially loosening the matching adjustment requirements, with other reforms established in due course.