The government or regulators should hold insurers to account on pledged investments from Solvency II windfalls, insurance leaders told MPs at a Treasury Committee hearing.
During a wide-ranging Wednesday session in which insurer bosses and an insurer association representative were grilled on topics ranging from pre-existing condition travel access to loss adjuster accountability, insurers were questioned over how they will evidence that tens of billions of pounds expected to be unlocked by Solvency II changes will be pumped back into the economy for the benefit of British infrastructure.
During proceedings, Andrea Leadsom MP queried where the “proof” will come from that insurers have used the funds for their promised purpose.
Consultations into the changes are set to continue into September, with expectations to be set out by the end of this year, according to a Prudential Regulation Authority timeline. The ABI has said that the refreshed regime could open up £100 billion of investment, including into green energy and social infrastructure, over 10 years.
“How will we judge whether that has, in fact, been the case versus whether it’s returned to shareholders in the form of dividends?” Leadsom said. “Should the regulators or the government be requiring more evidence of the intent actually being matched by reality?”
In response, Charlotte Clark, Association of British Insurers (ABI) director of regulation, said that the government “should definitely hold us to account”. ABI insurance company members are taking the approach that “this is not about increasing dividends, it’s about investment”, Clark said.
The ABI is considering how it can demonstrate that members have made good on promises and highlight benefits for social housing and green energy, the ABI regulation lead confirmed.
“We have a dividend policy that we, you know, reinforced earlier this year, it doesn’t change as a result of solvency to reforms,” Brown said. “We’re not returning any of that – we’ve made promises to the government, we completely expect to be held to account and evidence what we’re doing and when we’re talking within the ABI about an investment development forum, because we think we should be held to account and we want to be able to evidence, it.”
Under proposed changes, the risk margin would be reduced by 65% for life insurers and 35% for general insurers. The Bank of England has suggested that this could increase the probability of failure of around 20% in any given year, with the confidence level effectively decreasing from 99.5% to 99.4%.
Clark labelled this a “very assumption driven analysis” and drew parallels with Europe.
“The changes to the risk margin do reduce one of the capital buffers, but it’s a capital buffer which I think most people would say had been badly designed when it was implemented,” Clark said. “And so this was largely changing it – what’s happening in Europe, in terms of the review of solvency is [it is] coming out at a very similar position to what we’re coming out at, I think it’s largely just adjusting for it.”