The Government will have to oversee insurance companies' commitment to investing £100bn into the UK economy, says one of the country’s top regulatory executives.
Sam Woods, chief executive of the Prudential Regulation Authority, told a parliamentary watchdog on financial services that it was not their responsibility to make sure insurers keep to their commitment to invest in the UK.
The Government expects UK-regulated insurance firms to unleash a wave of investment into the country helped by new laws which have changed a key piece of regulation for insurance firms, called Solvency 2.
Asked by committee member Dame Andrea Leadsom whether it was the PRA’s responsibility to make sure insurers abide by the commitment, Woods said: “I just think that's beyond our remit. So I think if we did that, we'd be straying beyond what we should do.”
However, Woods told the Woods Treasury Sub-Committee on Financial Services Regulation on September 13, that the PRA would help the Government by supplying it with information on insurers’ progress.
He said: “But what we can of course do is in the reporting that we get in from the insurers. That all has to be in the service, if you like, of prudential objectives, but if some of that is relevant, and we can get the necessary gateways, of course, we can help Government from that perspective.”
The changes to Solvency 2 came in the Financial Services and Markets Bill which received royal assent on June 29.
The shake-up is a key part of the Government’s ‘Brexit dividend’, the idea that the UK, free to set its own laws and regulations from Europe, can reap substantial benefits.
Solvency 2 is the regulation, originally from Europe, which lays down the rules for how much capital insurers must keep on their balance sheet to remain financially stable.
The government has pushed through with its plans to loosen capital rules which it hopes will pave the way for insurers’ substantial investment in UK infrastructure, with a particular focus on green initiatives, sustainable projects and clean energy.
Charlotte Gerkin, PRA executive director of insurance supervision, was asked whether she believed insurers would commit to the investment.
She said: “From the conversations I've had with the chief executives of the large insurers, they've certainly been very serious about that commitment.
“And in conversations with the Association of British Insurers, they also have been keen to explain to me the investment delivery forum that they have set up with some of the large members and how they've divided that forum then into three work streams.
“One around the energy generation, one on energy transmission and then housing work stream as well,” she said.
“So from the commitment they made and the efforts they are putting into this, the time they are putting in investment, in terms of time, and to develop their ideas, I have seen that they are serious about this commitment.
“Clearly it is early days as they are setting up, so the proof will be as they develop these and as the projects do come along for their investment.”
The reforms to Solvency 2 have created tension with UK regulators who fear it makes insurance companies more at risk of falling into financial difficulty.
In January, the Governor of the Bank of England Andrew Bailey told Parliament’s Treasury Select Committee: "I don't think that it's likely, all things equal, that it's a risk to financial stability, but it is a risk to policyholders. I will mention Equitable Life...it can happen,” Bailey added.