After their capital requirements were relaxed, insurers were allowed to invest up to 100 billions pounds ($125 billion) in the British economy, according to Bank of England vice governor Sam Woods on Wednesday.
The insurance sector claims that Britain’s decision to cut back capital regulations for insurers later this year could free a maximum of 100 billion pounds to spend on infrastructure, but several politicians are skeptical that this will truly be the case.
Woods said to a subcommittee of the Treasury Select Committee of parliament, “I believe it may happen, however I can’t guarantee it.”
The Bank of England was overruled by the finance ministry, who loosened several capital regulations as much as Woods had desired. This could increase the likelihood that an insurance company will fail.
In order to prevent the extra funds from being utilized to pay dividend to shareholders or purchase foreign assets instead, legislators asked Wood if the nation’s central bank could keep an eye on investments.
According to Woods, it would be outside the BoE’s purview to order insurers to make investment decisions, and it would be up to the government to oversee how the newly available capital is used. “The government must respond in this manner, and I have faith that they will. According to Woods, there is a strong argument for them to do so.
According to Charlotte’s Gerken, the chief executive for insurance regulation at the BoE, spending 100 billion pound over the following ten years appears doable given how quickly liabilities from pension plans are being transferred to insurers.
As a result, Gerken added, insurance will have more capital to invest since infrastructure makes up only a small portion of their present holdings.
However, she added, achieving the goal is also contingent on whether insurers possess the necessary expertise and risk management capabilities to handle assets they have never handled before.
She added to the Federation of British Insurers has established working committees on investment into energy generation and transmission as well as housing, indicating that CEOs of major insurers are serious about making investments.