Bank of England Tells UK to Hold Insurers to Account on Infrastructure Spending

The government should check that insurers are spending up to 100 billion pounds ($125 billion) on Britain’s economy after their capital rules were eased, Bank of England Deputy Governor Sam Woods said on Wednesday.

Britain is rolling back capital rules for insurers from later this year and the industry has said this would make available up to 100 billion pounds to invest in infrastructure, but some lawmakers have doubts this will actually be the case.

“I think it may happen, but I can’t guarantee it,” Woods told a sub-committee of parliament’s Treasury Select Committee.

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The finance ministry overrode the Bank of England to ease some capital rules more than Woods had wanted, which could make an insurance company failure more likely.

Lawmakers asked Woods if the central bank could monitor investments to ensure the extra money does not end up being used to pay dividends to shareholders or buy overseas assets instead.

Woods said it would be beyond the BoE’s remit to direct insurers to allocate investments and it was up to government to monitor how the freed-up capital is spent.

“The government should do that, and I think they will do that. They have a strong incentive to do so,” Woods said.

Charlotte Gerken, executive director for insurance supervision at the BoE, said investing 100 billion pounds over the next 10 years looks achievable given how the transfer of liabilities from pension schemes to insurers is accelerating.

This means insurers will have more money to invest, currently only a modest part of their portfolios is in infrastructure, Gerken said.

But meeting the target will also depend on whether insurers have the right skills and risk management abilities to manage assets they have not managed before, she said.

Conversations with CEOs of large insurers show they are serious about investments, she said, adding that the Association of British Insurers has set up working groups on investing in energy generation and transmission, and housing.

($1 = 0.8008 pounds)

(Reporting by Huw Jones; editing by Alexander Smith)

Related:

• City of London Calls for ‘Big Moves’ to Boost Post-Brexit Finance
• Bank of England Proposes Further Reforms to Insurers’ Capital Rules to Cut Red Tape
• Insurer Capital Rule Changes in UK to Start by End of 2023, Finance Ministry Says
• Update: Britain Says Financial Reforms Will Be in Same ‘Orbit’ as EU, U.S.
• BOE’s Bailey Says UK’s Reforms of Insurance Capital Rules Increase Failure Risk by 20%

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