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Financial regulation reforms in the UK could cost GP95 billion

Financial regulation reforms in the UK could cost GP95 billion

The Association of British Insurers considers:

  • Improving the credit II (SII) regulatory regime for the insurance and long-term savings sector will free up billions while maintaining greater consumer protection.
  • An independent analysis by KPMG to the API shows how the insurance industry can boost the UK economy and support the fight against climate change if the SII regime is “refined” following the UK’s withdrawal from the EU.

The analysis, commissioned by API and conducted by KPMG, can be seen as a reflection of the UK Government’s advice on Solvency II. The study clarifies how changes in adaptive adjustment and risk margin mechanisms will free up 95 billion GB to reinvest and provide broader benefits to the national economy. Even after such changes, enough capital will still be provided in the insurance industry to cope with a shock in 200 years (Order 101 (3) of the 2009/138 / EC – Spolehlive 99.5% confidence level on the horizon for one year) and fulfill all obligations when assets are managed responsibly and safely.

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These changes proposed by the API specifically mean:

  • Issued by 60 MLD GBP z cca 300 mld. GBP, Pension funds managed by insurers, placed in equity portfolios, can be reinvested if the rules allow for investment in vast and lush assets. Currently, according to the API, it is much easier to invest in a high-value mining company than to invest in a wind farm (power plant) for 30 years. According to the API, there is a compensatory adjustment to ensure that long-term investments aimed at repaying long-term debt are not valued on a short-term basis. The current regulatory framework, created in response to the effects of the financial crisis, is forcing insurers and long-term savings product providers to invest more in high-value debt instruments and government securities. It turns investment into green investment and it is very difficult to invest in renewable energy, infrastructure and businesses that have the potential to successfully convert to zero net energy consumption. Amendment of compensation rules will ensure that those types of investments that are safer and more productive are taken into account in a rapidly changing world to meet the challenges of climate change;
  • GPP can use 35 billion capital, Now risk premium, credit capital demand and company capital reserves, to increase investment in this sector, to support the annual market or to repatriate shareholders to invest in other sectors of the national economy. According to the API, risk premium is an additional layer of capital introduced by the European Union. Insurers must have capital above the level at which consumers are required to meet their obligations. Risk premium is calculated according to a formula that is very sensitive to very low interest rates, forcing insurers to hold billions of extra capital for any purpose, which contributes to low levels of supply and competition in the annual market;
  • By 2051 GDP 16.6 billion GDP can be generated in the UK without any government spending. An increase in the productivity of GBP1 by 2021 will lead to an improvement in GDP of almost 4 GB4 by 2051;
  • As a result of economic growth, the Treasury could raise an extraordinary 1.2 billion taxes by 2030;
  • World-class consumer protection standards continue to apply. The UK regulatory framework will be one of the most sophisticated in the world, providing a high level of protection for policyholders and insured persons. Insurers must continue to maintain the required capital, use a sophisticated approach to risk management and be subject to strict and continuous oversight by the supervisory authority, the Prudential Regulatory Commission in the UK case.
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How Evans, CEO of API, said in a press release that the insurance and long-term savings sector can help the economy and the community far more than ever before, but only if SII meets the needs or objectives.

Finally, the API notes that the UK Government has also begun consulting on a future regulatory framework for financial services, which was launched in parallel with the S II review. The API considers this review important to ensure that a regulatory system designed for the UK market is in place in the UK. According to the API, it is clear that the preparation of new laws and the implementation of the changed rules for all financial services is a long-term task.

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After reading the API report, you have a clear idea of ​​SII reforms, and even with measured benefits. The direction of the reforms is not an absolute surprise, as the mechanisms have been subject to some criticism even within the EU. It would certainly be useful to follow the reform process in the UK as it is not possible to understand what the set of measures for S II in the EU will be given forever. As if unchanged. For example, the return on investment and the release of a portion of the capital would certainly be in the interests of all EU member states.