Post-Brexit Insurance Reform Expected Before December: BoE’s Woods

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The Bank of England sought on Monday to allay fears among insurers that it was dragging its feet over a long-trailed and disputed reform of their capital rules, saying a “very good sense” of the changes would emerge well before December.

Changing the rules, known as Solvency II, has become a test of how far Britain is ready to change regulations inherited from the bloc to boost the financial sector.

The industry has long called for a speedy reform to unlock billions of pounds from capital buffers to invest in infrastructure and boost the sector’s global competitiveness.

UK Government Seeks to Speed Up Post-Brexit Insurance Reforms

Insurers point out there have been, however, no major changes despite Britain having left the EU’s legal orbit more than two years ago, and regulators being given a new remit to buttress growth and the financial sector’s competitiveness.

In the meantime, the EU is much further down the road in updating Solvency II.

The BoE has clashed with the sector and the finance ministry over how far to ease the rules, citing the need to protect policyholders.

On Monday BoE Deputy Governor Sam Woods, who heads banking and insurance regulation, sought to ease frustration over the pace of change.

“Discussions with colleagues in the Treasury about precise timings are ongoing, but at this point our broad expectation is that we will publish a first consultation on some of the topics above in June, followed by a second consultation … in September,” Woods told the Association of British Insurers annual dinner.

“We are also mindful that for some changes, firms will need advance notice to prepare, but we expect that these consultations will give firms a good sense of how the detailed regime will operate,” Woods said, adding firms will have a “very good sense” of the changes well before the end of 2023 to adapt investment plans.

If parliament supports the government’s plan for a large cut to the risk margin of insurers, then the Bank would “move on from the debate and into implementation,” Woods said, referring to a mandatory buffer to help move a failing insurers’ policies to another insurer.

The Bank would not use new powers to “reverse engineer” disputed changes to the so-called ‘fundamental spread’ or discount on how much insurers can cut capital requirements.

“Let me say very clearly and simply that we will not do this,” Woods said.

(Reporting by Huw Jones; editing by Mark Heinrich and Alison Williams)