Today’s front page splash in the FT is news that Government are moving fast to a relaxed position for UK insurers writing capital intensive annuity business.
Just published: front page of the Financial Times, UK edition, Friday 11 February https://t.co/7pah7kWWOD pic.twitter.com/hJrz29qjQg
— Financial Times (@FinancialTimes) February 10, 2022
I don’t want this blog to become a secondary market in FT tittle-tattle , so I’ve tried to work out what’s behind the headline.
There’s Andrew Bailey’s speech where he makes it clear he’s all for the insurance companies getting away with it (plus ca change).
Governor Andrew Bailey hinted at the overhaul in a speech to The City UK on Thursday evening, telling financiers “the case for reform is clear” and pointing to ways to “enable more support from insurers for productive finance and infrastructure investment” while not compromising policyholders’ money.
But for the most part this is “Government sources” at work. It seems there are two areas of relaxation
- The reserving insurers must provide when selling guarantees.
- The rules governing the matching of assets to back those guarantees.
It amounts to Jonny foreigner being a little too restrictive while Bulldog Boris (and his side-pup Rishi) feel that up to £95bn can be freed up by the big insurers to fund projects typically funded by the taxpayer.
Xenophobia plays a large part in this. The chief culprits fingered are Australian and Canadian pension funds lining up their pension capital to invest in our infrastructure. Remember that the next time your car breaks an axel driving through a pothole on the M62.
As a wheeze for reducing the national debt, it looks like a good one. A simple risk transfer from the tax-payer to the pensioner , the pensioner typically being an annuitant whose pension has been bought out.
Certainly this looks like an easier market to go after than workplace pensions. Trustees and the boards of LGPS pension funds are making alarming noises about fiduciary duty when called upon to spark the investment big bang and level-up Britain to the cushy lifestyle of the South East.
And it appeases the ABI who have been on the moan over the granting of Clara the right to operate as a Superfund (with Pension Superfund hopefully following soon). The move would of course narrow the gap between insurers and superfunds and could conceivably make superfunds redundant were the PRA to throw three sheets to the wind.
The ABI are rather more powerful a lobby than the consumer who seems to be represented in this discussion by nobody at all, except perhaps by some sceptical FT journalists, who can be heard sotto voce in the article.
“Johnson is desperate to prove that Brexit is delivering benefits…”
Johnson this week made Jacob Rees-Mogg, a leading Leaver, his new “Brexit opportunities” minister, ordering him to come up with 1,000 EU rules to scrap.
City regulators have been cautious about reform, arguing that policyholders need to be protected against the risk of their insurer going bust.
Wrangling between the Treasury and regulators on the issue has dragged on for months.
The four FT journalists on the case (Jo Cumbo, George Parker, Laura Noonan and Daniel Thomas), seem to have arrived at a consensus that this is part of Downing Street’s get out of jail card. Certainly it’s a motley crew who they’ve lined up to champion the policy and I suspect a few eyebrows will be raised by those reading this account as to just how independent the Banks of England and PRA are from political pressure.
But the bigger picture may prevail, we may get Britain built back on the back of annuitant’s money without that back getting broken. In the nineteenth century the world danced to our Gold Standard. Plus ca change?
The Insurance lobby
If you have 1.25 hours to spare, you might like to hear the insurance lobby at work and the Government’s argument for weakening Solvency II and admitting riskier assets into the match , here’s Conservative Home’s video.