The senior UK insurance regulator on Monday said it was time “to move on” after a bruising dispute with firms over reforms governing the sector.
Sam Woods, chief executive of Bank of England’s Prudential Regulation Authority, told delegates at an insurance dinner that if the government’s proposed changes to rules for the industry were supported in parliament, “we need to move on from the debate and into implementation”.
Confirming a Financial Times story that Solvency II could be implemented in stages, he said the PRA was expecting to issue two consultations, one in June and one in September, “rather than a Big Bang implementation”. Speaking to the FT following the speech, he declined to comment on which changes would come in each tranche.
“Firms will have a very good sense well before the end of 2023 of how we expect the new regime to operate, so that they can begin to adapt their investment plans as soon as they wish,” he told delegates.
The relationship between senior BoE officials and insurance executives has been strained by the high-profile dispute over changes to the EU-inherited Solvency II rules, which govern where insurers invest and how much capital they need to hold.
The overhaul has been repeatedly highlighted as a “Brexit dividend” — despite Brussels pursuing its own parallel reform — and a central part of the recently announced Edinburgh reforms to boost the City of London. The government and proponents in the industry say £100bn of investment will be unlocked, which could be ploughed into other areas of the economy.
As part of changes proposed alongside the Autumn Statement, the Treasury in effect sided with insurers and overruled the PRA, which had pushed for a key aspect of the solvency rules, the so-called matching adjustment, to be tightened.
In a speech peppered with quips, Woods compared the “fundamental spread”, a part of the matching adjustment calculation that has been hotly debated, to “that other truly fundamental spread, Marmite”. He also poked fun at the government’s brand for Solvency II — Solvency UK, or “SUK”.
Woods also said that the regulator would “robustly” use new powers gained as part of the Solvency II overhaul, but would not seek to “reverse-engineer” its desired position on the matching adjustment.
“You should also expect us to continue to focus hard on the adequacy of valuations and ratings for assets in matching adjustment portfolios, given the very heavy reliance the regime has on them,” he said, referring to those assets that insurers use to back their pension liabilities.
He highlighted changes to improve competitiveness, including to “do away with” about 70 per cent of the “too bureaucratic” internal model tests and standards inherited from the EU.
Last month, Woods and Bank of England governor Andrew Bailey surprised MPs and industry executives by telling a House of Commons committee that the effect of the reform would be to increase risk for policyholders.
Woods described it as a “trade-off that the government has made” and that it could even end up hitting the public purse, if a pension provider ran short of capital. Insurance executives privately fumed at the remarks.
