Insurers’ capital level appropriate: BoE
Concerns that the Bank of England (BoE) will use Solvency II to increase levels of capitalisation across the insurance sector are unfounded, according to Sam Woods, executive director for insurance supervision at the BoE.
In a speech given at the Association of British Insurers (ABI), Woods explained that he would like to bust two myths: the idea that there is a plan to use Solvency II to increase required capital and the suspicion that the BoE will keep the current ICAS regime alive instead of embracing the new regime.
“I have heard from some a concern that we will use Solvency II to increase levels of capitalisation across the sector, or that we are seeking to load the sector with more capital now so that it is baked into the new regime once operational,” he said.
He said there was no such plan as the BoE believes that the current regime secures an appropriate level of capitalisation for the insurance sector and puts it in a good position to make the shift to Solvency II.
However, he added that Solvency II moves beyond the current regime, so firms will see movements in their regulatory capital positions.
On the second myth, Woods said: “Let me be clear: Solvency II will be the foundation of our supervisory approach and we will fully embrace the change that accompanies it.”
“Although Solvency II incorporates many of the features of ICAS, the shape of the new regime is different. The EU is moving to a harmonised, risk-based, transparent, and “going concern” regime. This means some significant changes to the shape of the balance sheet and our assessment of financial resources,” he added.
Huw Evans, director general of the ABI, said: "We welcome the PRA’s announcements on the use of transitional measures and approval of internal models under Solvency II.
"The transitional measures are a key part of the new regulatory regime and it is reassuring to receive formal confirmation that the PRA will allow the full use of these measures to firms, including for the payment of dividends.
"We also welcome the PRA’s clarity on the communication of internal model approvals. Regulatory decisions will now be communicated simultaneously to all firms in early December 2015, which is very close to the January 2016 Solvency II starting date. The industry will work closely with the PRA over the coming months to ensure this process can work in practice."
