According to a news article, the Bank of England (BoE) has proposed a reform of capital rules for insurers in an effort to release billions of pounds for investments in the economy. The current rules, known as Solvency II, were inherited from the European Union and the reform is seen as a “Brexit dividend” to unlock potential investments. The reform specifically focuses on a matching adjustment that ensures insurers’ assets generate enough cash to cover future payouts. By investing in assets that generate cash at the right time, insurers can reduce their capital requirements.

Bank of England Deputy Governor Sam Woods stated that the proposed adjustments aim to promote policyholder protection while allowing the annuity sector to fulfill its commitments to increase investments in the UK economy. The government has overridden the BoE’s previous stance to impose a less strict discount, freeing up billions of pounds for investment in infrastructure and the transition to a net-zero economy. The BoE assured that the proposed limit, along with other reforms, will not hinder insurers’ ability to meet their commitments for potential investments.

The BoE plans to publish the final policy and rules on the matching adjustment in the second quarter of next year, with an effective date of June 30, 2024. Other changes related to the Solvency II review will take effect on December 31, 2024. This proposed reform is expected to have a significant impact on insurers and their ability to invest in the UK economy, potentially unlocking substantial funds for economic growth and development.

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