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Link(s):

Twenty per cent higher chance of insurance firms collapsing due to Solvency II reforms, Bank of England tells Treasury Committee – Committees – UK Parliament Letter from Governor of the Bank of England to Chair of the Treasury Select Committee (parliament.uk)

Context

Government proposals to reduce how much capital life insurers must hold to protect themselves against bankruptcy increase the annual chance of a firm collapsing from 0.5 to 0.6 per cent, the Bank of England reveals in correspondence to the Treasury Committee.

Key points to note

In a letter, the Governor of the Bank of England outlines that the Government’s plans to overhaul Solvency II rules (which govern the ‘buffer’ of assets an insurer must keep on its balance sheet) increase the probability of a failure in the life insurance sector.

The annual risk of a failure will rise from 0.5 to 0.6 per cent if the changes are implemented, a “relative increase in the probability of failure of around 20 per cent”, according to the Bank. The Governor claims the Government’s plans increase the risk by twice compared to the Bank’s preferred reforms.

Next actions

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