The long awaited reform of the EU Solvency II regulations, which essentially require large financial institutions to keep vast sums of cash locked away, rather like a tenant deposit scheme on steroids, is underway at last after a partial Brexit in 2020.
In theory, the extra reserve capital could be used by big insurers to develop new automated PAYG cover and parametric payouts, or deeper levels of personalised data profiles, which would offer consumers the chance to trade data for rewards. Then there is the antiquated quote engine used as a default across the UK, which still has outdated occupation and lifestyle information set out in a 1990s paper format across ten pages. Big insurers could also sell home, gadget, bicycle, travel and life products as bundled, embedded products which bolt onto someone’s consumer purchases. There is so much to do, so much progress that can be made.
The bad news is that the UK government has framed this legislation primarily to free up private capital to fund WEF objectives on Net Zero. Their aim is to raise private capital for more wind turbines, social housing for millions of migrants, carbon credit offset forests, rewilding arable land, installing heat pumps and electric car chargepoints etc. This is the Great Reset writ large and insurers and banks are effectively being taxed by stealth to help fund this utopian socialist/green vision. It may or may not end well, history will be the judge, but insurers hoping to choose how their Solvency II cash is spent will be sorely disappointed.
Here’s an extract from the Edinburgh Reforms;
“The government is ensuring that the financial system plays a major role in the delivery of the UK’s Net Zero target, and is acting to secure the UK as the best place in the world for responsible and sustainable investment.
The UK is the world’s premier financial centre for sustainable finance. The government is acting to ensure the UK retains global leadership in this rapidly growing sector, helping to unlock the private financing needed for Net Zero.”
Here’s some finance sector reaction;
Anne Fairweather, Head of Government Affairs and Public Policy, Hargreaves Lansdown:
“The Government has used today’s package of measures to underline this week’s commitment to reviewing the advice/guidance boundary. The review will be a game changer to allow firms to do all that they can to help people manage their finances better and rebuild their financial resilience over the longer term.
The proposed review of PRIIPs and retail disclosures, those reams of paper you get when you take out an investment, is also welcome. The Treasury is looking to take a more proportional approach which should be linked to the FCA’s new consumer duty. The future regime should challenge firms to improve clients’ decision making and drive better outcomes rather than swamping them with paper.
Retail investors are significant shareholders in UK listed companies yet consistently get frozen out when companies raise more capital or when new companies list. Changes to the prospectus regime should focus on levelling the playing field for retail investors and remove unnecessary hurdles from their participation in these investment opportunities.
Today’s announcement that LTAFs (Long Term Asset Funds) are in the process of being authorised is good news will allow for investment opportunities like private markets and infrastructure that have previously been hard to reach for modern workplace pensions and retail investors. The final FCA rules are due shortly which will set out how ordinary retail investors might be able to invest, but there remains need for reform to allow LTAFs to be held in ISA and SIPPs.”
Gayatri Raman, President Europe and Asia, Clearwater Analytics
“They say good things come to those who wait. The UK government’s legislative reforms to the Solvency II requirements will incentivise UK insurers to put their excess cash to better use with lower capital charges. This spare cash is all well and good if insurers have the capabilities in place to support alternative asset classes and complex investment strategies in the search for higher yields. After all, in the search for greater returns and diversification under these new regulations, insurers will need to evaluate different investment strategies relative to where they are today.
They need to be able to rely on a single portfolio view, where alternative, illiquid assets are processed alongside the more vanilla assets that a lot of insurers will have much more experience investing in.”
Helen Morrissey, Senior Pensions and Retirement Analyst, Hargreaves Lansdown:
“The UK’s defined contribution market has consolidated hugely in the last decade but remains fragmented with many small schemes offering varying levels of fees, governance and service. Increased consolidation brings scale and scale can bring huge opportunities in terms of the costs, performance and support schemes can offer to members. These reforms can accelerate this trend and potentially boost member outcomes by putting in place a framework on the standards of service members can expect from their scheme across the market.
Increased scale can also open the doors to increased investment opportunities with larger schemes able to negotiate better fees and invest in a wider range of assets such as infrastructure. This shift can be fuelled by the government’s plans to introduce regulations early in the new year to enable well designed performance fees to be removed from the DC charge cap. However, it is important that client outcomes remain the focal point, so while costs and investment performance are important, so too are the decisions people make along the way. This should factor into the value for money assessments but risks being cast aside because it’s ‘too hard to measure’.
The charge cap was brought in to ensure people got good value from their pension scheme but cost is not the only way of determining value and this legislation will open the doors to DC savers to invest more widely and potentially boost returns. However, the key to success of this reform will be striking the balance of delivering opportunities people want to invest in at a sensible cost.”
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