($1 = 0.8335 pounds) (Reporting by Huw Jones; Editing by Susan Fenton)
Messaging: huw.jones.thomsonreuters.com@reuters.net)) By Huw Jones
LONDON, March 6 (Reuters) - Britain's proposals to
loosen capital rules for insurers will increase the chances of
an insurance company failing by 20% in a given year, the Bank of
England has told lawmakers, reiterating its caution over the
government's plan.
Following Britain's departure from the European Union, its
finance ministry has proposed easing capital requirements for
insurers to unlock billions of pounds for investing in
infrastructure to boost the economy.
Easing the so-called Solvency II rules inherited from the EU
is seen as a key "Brexit dividend" for the financial sector, and
the ministry overrode warnings from the Bank of England, saying
policyholders would still be protected.
The BoE looked at the impact of the government's plan to
ease the risk margin, a capital buffer life insurers must hold
to move policies to another insurer in the event of a collapse.
BoE Governor Andrew Bailey said in a letter dated Feb. 22 to
parliament's Treasury Select Committee, published on Monday,
that "in the round" over a one-year period, the estimated
capital release of 14 billion pounds ($16.80 billion) could lead
to an increase in the annual probability of failure of
approximately 0.1 percentage points.
"This means that over a one-year period... the probability
that a life insurance firm would hold sufficient capital to
withstand the solvency standard stress level will be 99.4% when
compared to the current level – a relative increase in the
probability of failure of around 20%," Bailey said.
If the BoE's proposed reform had gone ahead, which
advocated easing the risk margin by less than the government
proposes, then "less than half of this increase would have
occurred", Bailey said.
"If a future failure occurs, it would be difficult to
predict the quantum of losses, nor is it certain that it would
be limited to a single firm," Bailey said.
The BoE will implement the ministry's proposed reforms of
Solvency II if approved by parliament, Bailey said.
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