Treasury in discussions to speed up Solvency II reforms

The Treasury is looking to speed up a key post-Brexit reform to unlock £100bn of investment from the UK insurance sector, after growing impatience in the industry and government over the pace of change.

Officials are discussing with the sector whether to pursue a two-stage implementation of the EU-inherited Solvency II regime, according to people familiar with the matter.

A radical reform of these rules, which govern how insurers are run and where they invest, has been a prized “Brexit dividend” for the government and a central plank of the recently announced Edinburgh reforms to overhaul financial services.

One option is to move more quickly to loosen the requirements governing the assets that can be used to match insurers’ long-term liabilities — in so-called matching adjustment portfolios.

This would allow insurers to more easily swap out bonds for economically productive investments, such as infrastructure. Other parts of the reform, such as changes to reporting requirements, could then be introduced at a later stage, though no final decisions have been made, the people said.

A Treasury source said the government was in “active discussions with the Prudential Regulation Authority, which supervises the insurance sector, and insurers as to how we can speed up implementation over the coming months”. The Treasury and PRA declined to comment.

Questions have arisen over the timetable for the Solvency II changes, which were announced in November’s Autumn Statement.

The announcement followed a clash between government and the sector’s regulator over key aspects of the reform. Last month, Bank of England chiefs warned MPs that the package of capital reforms “increases risk” for policyholders, views that are shared by some former regulators.

“From the dialogue we’ve had so far, getting all of the Solvency II reform in for the beginning of 2024 . . . is unlikely, but I think it would be feasible to prioritise some key elements and get those in,” said Andy Briggs, chief executive at FTSE 100 life insurer Phoenix Group.

The Phoenix Group has said the reform could allow it to invest tens of billions of pounds into infrastructure.

“What I would focus the energy on is matching adjustment eligibility because that is the thing that will do the most good for wider society,” he added.

The Solvency II reforms remain a top priority for Rishi Sunak, prime minister, and Jeremy Hunt, chancellor, as they attempt to persuade the country — and Brexiter Tory MPs — that they are exploiting supposed Brexit freedoms.

On Wednesday night, City minister Andrew Griffith pledged to make “meaningful progress” over the coming months on delivering the policies outlined in the Edinburgh reforms.

He told a group of City executives and officials that there should be “no doubt that the government’s mission is now to make over the next months meaningful progress, not to talk about things, but to deliver, deliver, deliver. So let us keep going.”

The minister added that the government would take a “scalpel” to parts of Solvency II that holds back capital from its “most productive uses”.

Some Tory MPs have expressed concerns that the EU may beat the UK to the punch. Discussions are taking place this year in Brussels between MEPs, the European Commission and the Council of Ministers on its own proposals to overhaul Solvency II.