Sources close to a cabinet member said Threadneedle Street was “100%” opposed to red tape cuts after Britain leaves the European Union following a row over the insurance market. Experts said they were particularly concerned about the approach taken by the Prudential Regulation Authority (PRA), part of the Bank set up to police the financial system after the 2008 crisis. They warned that the PRA’s slow response to requests to overhaul EU-era insurance rules, known as Solvency 2, is symptomatic of a wider institutional reluctance to embrace Brexit freedoms. The source added: “The PRA risks messing up some surprisingly important reforms.” The clash – which would once have been highly unusual – follows months of rising tensions between the government and Andrew Bailey, the governor of the Bank of England, over who is to blame for the cost of living crisis as inflation spirals out of control. The latest flashpoint comes after plans to relax the controversial Solvency 2 rulebook, which was introduced by the EU in 2016 and requires UK insurers to keep huge amounts of cash on their balance sheets. Insurance has been touted for years as an industry that could benefit from easing EU rules, and industry chiefs have pledged to unleash a £90bn plus ‘Big Bang’ investment if ministers seize Brexit and cut red tape of the EU era Insurers and pension funds have argued that current restrictions mean they are unable to plow as much capital as they want into illiquid assets such as infrastructure. However, there are growing concerns in government that regulators are stalling reforms. Boris Johnson, the prime minister, is said to be increasingly impatient with the PRA which he believes is being over-cautious. The regulator, which oversees UK insurers, said it was determined to ensure that any easing of the regulatory burden did not pose a risk to policyholders or the stability of companies. A more cautious note was previously sounded on rulebook reforms, warning against an overhaul that “effectively decapitalizes the insurance sector”. A source close to the cabinet minister said: “Ministers seem to be more frustrated with the PRA in particular rather than the Bank of England in general at the moment.” The proposed reforms are expected to reduce reporting and administration burdens for businesses, increase their flexibility to invest in long-term assets, including infrastructure, and free up capital by reducing the risk margin faced by insurers. At the same time, the “matching adjustment” mechanism covering long-term investments, which the industry says is moving it away from projects such as wind farms and into low-yielding government and corporate bonds, will also be amended. There have also been growing concerns among insurance chiefs about how the review is progressing, with some arguing that the PRA is seeking to reduce charges in the “corresponding adjustment” that could make large parts of the reforms unnecessary. Insurance executives met chancellor Rishi Sunak on Monday to discuss Solvency 2 reforms and some industry chiefs raised questions about the PRA’s proposals for a fit-for-match, according to the Telegraph. Johnson’s concerns, first reported by the Financial Times, came as the EU reviews its own solvency regime, sparking fears in the City and Whitehall that the UK was moving too slowly to overhaul the rulebook and risked overshadowed by Brussels. Jacob Rees-Mogg, the Brexit opportunities minister, said the Solvency 2 rules were “ripe for reform” and should be quickly rewritten. Earlier this year, Amanda Blanc, chief executive of Aviva, also told the Telegraph it was time to reform the EU rulebook and “put our country’s hard-pressed pension funds to positive national use”. In December, Mr Bailey said “the case for reform is clear” and added that Solvency 2 was “never right” for the UK market, claiming they threatened the financial soundness of insurers and the protection of policyholders. A Treasury spokesman said: “We want to support our vibrant insurance sector to invest in this country while continuing to ensure policyholders are protected. “We are working closely with regulators and industry to redesign the rules to better suit our country’s needs.” “Now we have left the EU, we are determined to ensure that the rules around the insurance sector work in the UK’s best interests.” A spokesman for the Bank said: “The Bank of England has moved forward with the implementation of Brexit. Our proposed reforms to Solvency II are wider and support all of the government’s objectives.”
