European Union rules to keep insurance companies stable will not be an excuse for regulators to ramp up capital requirements for insurers in the UK, a senior Bank of England official said yesterday.
The so-called Solvency II rules, which take effect in 2016, aim to ensure insurers such as Britain’s Prudential and Aviva hold enough capital to honour policyholder commitments even when markets turn sour.
“The PRA believes the UK industry is in a good position,” the BoE executive director for insurance supervision, Paul Fisher, told a Westminster Business Forum conference.
“We are therefore not looking to use Solvency II as an opportunity to raise capital requirements across the board. We can’t and won’t gold-plate,” Mr Fisher said, dismissing suggestions that the UK might implement a tougher version of the EU rules.
The UK insurance market was “probably about right” in terms of capital levels and the overall requirement is likely to go down once Solvency II is fully implemented, he said.
The rules should be more challenging for the rest of Europe. “They will have to raise their capital levels” to close the gap with Britain, Mr Fisher said. “Hopefully it will close to zero.”
Larger insurers will use their own models to estimate capital requirements and the BoE will need to approve some 40 models by next January, compared with just four in Germany.
Mr Fisher is focusing on approving the models of key firms first, suggesting not all will be vetted by January. “It shouldn’t be a badge of honour to be there on day one, but for some firms it should be,” he said.
Michael Wade, who advises the UK government on insurance issues, told the conference the syndicates at the Lloyd’s of London insurance market should compete on the quality of underwriting and seek to attract more foreign capital.
“It’s not about a price war,” he said.
Tax treatment of multi-year premiums being looked at by the government would help, along with changes to the regulatory culture.
“If you want to set up in Bermuda, you are offered lunch with the regulator and you are set up in a few weeks. That is not always the case in London,” Mr Wade said. Bermuda is a major competitor to Lloyds of London.
Mr Fisher said the BoE maintains an appropriate approach to regulating firms. “Having good regulation is key to a successful market in London. I don’t think there is any inappropriate tone from us in doing that.”
Frank Carson, head of insurance at the Treasury department, said initial findings of its review of rules and tax on re-insurance will be published in the next budget statement in March.
However, it was up to insurers to use the new EU rules to put themselves “on the front foot” as they are “better placed than most European entities”.