, said the announcement 'gives us the stability to support the Government's objective of investing in productive assets whilst ensuring that policyholder pensions are secured to the highest standards." The Treasury acknowledged on Thursday that there was 'no consensus' surrounding the so-called matching adjustment mechanism, which covers long-term investments. The matching adjustment mechanism allows life insurers to match predictable cash flows from assets against liabilities and get a capital benefit as a result. However, the Treasury has brushed aside concerns raised by the PRA on this issue to push ahead with reform. Under the new proposals, the regulator will be given tools to monitor this area by requiring insurers to carry out regular stress testing and by making senior managers formally vouch that their company's fundamental spread – an aspect of the matching adjustment – is sufficient. The Government will also cut the risk margin, an extra capital buffer that companies are required to hold, by 65pc for life insurers and 30pc for general insurers. Industry chiefs argue that Solvency 2 rules as they currently stand discourage them from investing in projects such as wind farms, instead forcing them to put money into low-yielding sovereign and corporate bonds. Industry leaders have said they want to invest more capital in illiquid assets such as other infrastructure projects, but their hands have been tied as a result of Solvency 2 restrictions. Insurance has been touted for years as an industry that could benefit from relaxing the EU rules introduced to make financial institutions safer after the 2008 financial crash.){kind=link}
Chancellor confirms post-Brexit reforms that could unlock billions in investment
Jeremy Hunt has overruled the Bank of England to push through key post-Brexit insurance reforms intended to unleash an investment “big bang”.
The Chancellor confirmed that the Government will overhaul the Solvency 2 rulebook, which requires insurers to hold vast sums of cash on their balance sheets and dicates where they can invest, in a move that will allow companies to plough billions of pounds into the UK economy.
Mr Hunt said: “Nigel Lawson’s Big Bang inspires us today – but nearly 40 years on we must stay true to its mission to make the UK the world’s most innovative and competitive global financial centre.
“So to further support investment across our economy, I can also announce we are publishing our decision on Solvency 2, which will unlock tens of billions of pounds of investment for our growth-enhancing industries.”