Insurers need more flexibility after Brexit, says Bank of England
More flexibility is needed in capital rules for insurers that Britain has inherited from the European Union, but there won’t be a wholesale ditching of the bloc’s rules despite Brexit, a senior Bank of England (BoE) official said on Tuesday.
BoE executive director Anna Sweeney, co-leader for the insurance sector, said she was encouraged that EU regulators were considering whether to amend the “risk margin” as part of this year’s review of EU Solvency II capital standards for insurers.
The risk margin refers to the potential cost for a failing insurer to transfer its policies to a third party and does not cover actual expected claims.
EU insurance regulators have estimated it locks up 210 billion euros ($228 billion) in capital, artificially swelled by current very low interest rates.
Britain left the EU in January and will apply the bloc’s rule until December, after which it has an opportunity to change British financial rules.
Sweeney said this would not mean full-scale ditching of the EU capital regime and returning to the system Britain had before the bloc’s rules were introduced four years ago.
“I don’t think we are saying we want to go necessarily all the way back, but some of the flexibility we had in that regime would be a good thing,” Sweeney told the Association of British Insurers’ annual conference.
There was also “grit in the wheels” for insurers wanting to invest in infrastructure and requirements for reporting data to regulators were also burdensome for smaller insurers, she said.
Insurers have spent millions of pounds implementing Solvency II and Sweeney said she did not think there were “loads and loads” of things to fix.
“Having a period of embedding things is still sensible to us,” she said.
Britain’s access to the EU financial market after January will depend on maintaining similar rules to the bloc. Discussions on a EU-UK trade deal start next month.
Although it could take years for the EU to change the risk margin, Britain is cautious about moving earlier.
“There will be some sensitivity in Europe to the speed of change as well as the direction of change. If we want to get there faster they might regard that as a form of aggression,” Sweeney said.
“We would absolutely look at the timing, but I can’t sit here and say we would definitely go earlier as it depends on that broader discussion,” Sweeney said.
The insurance sector is split over EU access, with life insurers wanting to diverge from Solvency II rules, while the London insurance market sees access to the bloc as the priority.
“The practical decision on which trade-offs to make… that will be a political decision,” Sweeney said.
($1 = 0.9197 euros)
(Reporting by Huw Jones; Editing by Lawrence White and Edmund Blair)
(c) Copyright Thomson Reuters 2020