LONDON: Britain’s post-Brexit insurance sector reforms, aimed at freeing up capital and boosting economic growth, could also raise the risk of bankruptcies, a top Bank of England official cautioned Tuesday.
London plans to further relax capital requirements for insurance firms to replace Europe’s Solvency II framework, hoping to release billions of pounds for so-called “green” investments and infrastructure.
“The government’s very clear objective is to promote growth and investment,” said Sam Woods, head of the BoE’s Prudential Regulation Authority which oversees commercial banks and insurers.
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“I don’t think it’s surprising to the government that it comes with some increase in risks,” Woods added before a parliamentary committee on Tuesday.
Under the new rules, the annual probability of a UK insurer bankrupcy will rise from 0.5 percent to 0.6 percent, according to Woods, who conceded that this still was a “relatively small number”.
The government of Conservative Prime Minister and vocal Brexit backer Rishi Sunak wants to relax rules that currently prevent insurers from investing in riskier assets.
UK finance minister Jeremy Hunt has forecast the reforms could help unlock an extra £100 billion ($120 billion) of investment, describing it as a “big bang” for the financial sector that will slash red tape and “turbocharge” the economy.
Hunt is due to deliver his annual budget statement on March 15.
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