The Bank of England has unveiled plans to reform capital rules for insurers in order to release billions of pounds for investments in the UK economy. The reforms are aimed at updating the Solvency II rules, which were inherited from the European Union. The changes, known as the matching adjustment, seek to ensure that insurers’ assets generate sufficient cash to cover future payouts on policies and pensions. By investing in assets that generate cash at the right time, insurers can reduce their capital requirements and potentially unlock significant funds for investment. The Bank of England’s proposals aim to strike a balance between policyholder protection and increasing investment in the UK economy.
The UK government has supported these reforms in an effort to unlock billions of pounds for investment in infrastructure and to help transition to a net-zero economy. The Bank of England’s proposed limit, along with other reforms, is expected to enable insurers to meet their commitments for unlocking potential investments. The final policy and rules on the matching adjustment are set to be published in the second quarter of next year, with an effective date of June 30, 2024. Other changes related to the Solvency II review will come into effect on December 31, 2024. These reforms are seen as a “Brexit dividend,” providing an opportunity for insurers to invest more in the UK economy while promoting policyholder protection.
Overall, these reforms by the Bank of England aim to update capital rules for insurers and unlock billions of pounds for investment in the UK economy. By reforming the Solvency II rules, insurers will be able to invest in assets that generate cash for future payouts, reducing their capital requirements and enabling them to invest more in the economy. The proposed reforms have received support from the UK government, which sees them as a way to unlock funds for infrastructure investment and the transition to a net-zero economy. The Bank of England’s proposals strike a balance between policyholder protection and increasing investment, and the final policy and rules will be published in the coming months.