Prudential Regulation Authority (PRA) chief executive Sam Woods has reportedly told parliament that insurance companies are overstating the issues regarding Solvency II.
Woods said on Wednesday before the parliament’s Treasury Select Committee that Solvency II is “basically a sensible regime,” Reuters reported.
However, he admitted that Solvency II, which sets out capital rules for EU insurers, needs some changes.
“I am not a cheerleader for Solvency II... There are some bugs that need to be ironed out,” Woods was quoted as saying by Reuters, adding that insurers are exaggerating the problems.
In January, some insurance giants appeared before the same legislative committee to criticise the Solvency II regime, which the companies said have driven insurance business out of the UK. The insurers also claimed that the capital rules have made it difficult for them to invest in real assets in Britain such as infrastructure.
But according to the Reuters report, Woods said the main reason for insurers’ low investment in infrastructure was the lack of attractive projects.
Earlier this week, Bank of England head of insurance supervision David Rule downplayed the need to make immediate changes to the implementation of Solvency II in the UK, saying it had been “robust but proportionate,” the Financial Times reported.
Both Rule and Woods, however, agreed with insurers’ complaints about the “risk capital” element of Solvency II.
“Given its flawed design, we believe that the risk margin is too high at current low levels of interest rates,” Rule was quoted as saying by the publication.
“It’s overcooked. It’s fundamentally flawed and needs to be fixed,” Reuters also quoted Woods as saying.
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