BoE’s Bailey: EU insurance laws should be changed

Bank of England governor Andrew Bailey focuses on EU laws which require insurance companies to hold enough cash to ensure they do not collapse are not well suited for the UK.

The governor told listeners to a speech in the City that the so-called Solvency 2 regulations needed to be reformed. “I do not for a moment consider that the Solvency 2 we transposed from EU law and regulation is best suited to the UK,” Bailey said at a dinner organized by industry group TheCityUK on Thursday.

“Why would it be, since it was designed to cover 27 countries? The case for reform is clear”, he added that in changing them the UK must first “ensure we define and set our expectations on safety and soundness and policyholder protection”.

The Solvency 2 regulations were set to ensure the stability of insurance companies across the EU.

It has three pillars, the most important of which is ensuring that insurers hold enough cash so they can resist becoming insolvent if they get an unusual number of claims.

The regulations also include rules on transparency and on regulatory oversight. They came into effect in 2016 and were transferred to UK law when the country left the EU.

At the time the proposals were being debated, they were criticized by the boss of Prudential, who said they could drive companies out of the UK. Last year the business said it was committed to its UK headquarters.

Bailey’s speech comes just days after the Governor sparked a backlash for saying that workers should help keep inflation down by not asking for big pay rises.

His comments came despite a huge increase in the cost of living, caused by rising energy prices among other things. The Bank predicts that inflation will reach more than 7% in April. Both Downing Street and unions pushed back against the governor’s words.