By Louis Goss
The Bank of England today warned the UK’s planned Solvency II reforms could increase the risk of insurers collapsing… by just 0.1 percentage points.
In a letter published today, the BoE’s governor Andrew Bailey said the UK government’s plan to overhaul the EU’s rules will increase the risk of life insurers collapsing by 20 per cent.
This 20 per cent increase would, however, see the risk of life insurance companies collapsing increase from 0.5 per cent to 0.6 per cent.
The BoE’s letter acknowledges that overhauling the EU’s Solvency II rules – which govern the sums insurers must hold on their balance sheets to protect themselves against bankruptcy – will unlock billions in capital for investment in the British economy.
The letter, however, warns that the plans in their current form “could lead to an increase in the annual probability of failure for this sector of approximately 0.1 percentage points”.
It argues that if the government had followed the BoE’s recommendations, “less than half of this increase would have occurred”.
The BoE instead called for reforms which it said would only see the risk of failure increase by less than 0.05 percentage points.
Critics of the BoE’s Prudential Regulation Authority (PRA) have claimed the insurance watchdog has taken an overly cautious approach to the UK’s planned Solvency II reforms.
The PRA in turn claims it is acting in the interests of the British public by ensuring UK insurers are protected against collapse.
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