The Treasury has proposed post-Brexit reforms that it claims will increase infrastructure investment in the UK by “tens of billions of pounds.”
The department unveiled a plan to overhaul the Solvency II regulation, which governs how insurers in the European Union must manage risk.
Whitehall has put out proposals for consultation this week that would give financial protection providers in the UK more flexibility in investing in long-term assets.
According to the Treasury, the plan will allow the insurance industry to “invest tens of billions of pounds more in long-term UK infrastructure and green projects.”
One of its main goals is to increase the use of the so-called “matching adjustment,” which incentivizes providers to bundle long-term life insurance with long-term assets.
“The government proposes to ease in a targeted way the restrictions on which assets insurers can include in matching adjustment portfolios,” according to the consultation, which runs until July 21. Insurers will be able to include assets with prepayment risk, such as callable bonds, commercial real estate lending, housing association bonds and loans, and infrastructure assets, which the issuer has the option to repay at a later date.
“The treatment of assets with construction phases will also be amended under these proposals so that firms can recognise penalties and other consequential amounts that may be payable to the insurer if completion is delayed,” the document continues.
“Today’s consultation demonstrates our commitment to go further and faster to deliver the benefits of Brexit,” said John Glen, the Treasury’s Economic Secretary. Our reforms will bring tens of billions of pounds into the UK economy, spur market innovation while safeguarding policyholders, and cement the UK’s position as a global financial services hub.”
The Civil Engineering Contractors Association’s chief executive, Alasdair Reisner, said there was a “strong case” for insurers to invest in infrastructure.
“The government is attempting to open up such investment,” he added, “hoping to secure the ability to expand this source of funding for future schemes.” “However, Solvency II was enacted in the aftermath of the last financial crisis, and any actions taken must ensure that they do not have a long-term impact on financial institution stability.”
The Association of British Insurers stated that it would carefully consider the proposals.
“Only meaningful reform will allow our industry to invest in much-needed green infrastructure, especially at a time when energy security is becoming increasingly important,” said Charlotte Clark, director of regulation.