The Bank of England has warned the Treasury Committee that the Government’s proposed changes to Solvency II rules increase the risk of a failure in the life insurance sector by 20%.
The new regulations reduce the amount of capital that life insurers must hold to protect themselves against bankruptcy. In a letter to the committee, the Governor of the Bank of England claimed that the government’s plans increase the risk by twice compared to the Bank’s preferred reforms.
The annual probability of a failure will rise from 0.5% to 0.6% if the changes are implemented.
The PRA will face questioning on the matter today as MPs discuss the proposed reforms to Solvency II and other financial services regulations, including ring-fencing, senior managers regimes, and the promotion of growth and competitiveness.
The committee will also discuss lessons learned from last year’s LDI fund collapse, and whether the UK’s financial stability is at risk from cryptocurrencies and a ‘digital pound’.
