Moves to hand the Bank of England fresh powers over insurers will not be enough to offset the risks posed by looser regulation, one of the central bank’s most senior officials has warned.
The comments by the chief executive of the Bank’s regulatory arm, Sam Woods, come a day after his boss and Bank of England governor Andrew Bailey, warned that reforms to so-called Solvency II regulations would increase the possibility of life insurance firms failing by 20% in a given year.
Firms like Aviva and Legal & General claim the reforms will release hundreds of billions of pounds for big investments like infrastructure projects, by reducing the amount of capital they have to hold to prove they can pay policyholders in the long term.
The Treasury and BoE have disagreed over the potential risks of Solvency II reforms, which the Conservative government hopes will accelerate the levelling up agenda across the UK.
Woods told MPs on Tuesday that the government was offering the Bank “additional powers” to oversee the insurance sector, including additional stress testing – which measures how firms would fare during a severe market downturn – and requiring senior managers to personally vouch for the fact that the firm is holding enough capital against risks on their balance sheets.
However, Woods said it did not make up for increased risks the planned reforms pose.
“The government has committed … to give us some additional powers to help us manage risks in the insurance sector,” Woods told the Treasury select committee, adding: “What I would say though, is that we do not think we either should, or can, use those to achieve the same effect, as we were looking for through a reform of the fundamentals.”
However, Woods told the committee he did not
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