Briefing: Autumn Statement is not all good news for insurers

Insurers will be breathing a sigh of relief over two big wins in last week’s Autumn Statement (17 November 2022) - however, one of these wins may not be as positive as the industry first thought.

The decision by current chancellor of the exchequer Jeremy Hunt to freeze insurance premium tax (IPT) at 12% was followed by an announcement about the solvency requirements set to replace Europe’s Solvency II regulation.

The targeted result of the proposed changes is to ease the level of reserves that insurers have to retain in order to balance the risk exposures they are assuming.

It is clear that the UK government believes that with more of insurers’ reserves now freed up, their additional monies will be used to invest in growth projects, such as infrastructure, therefore boosting the economy at a time when this activity is sorely needed.

Implications for the London market

The freeze in IPT is a big win for the market and, more importantly, policyholders.

Insurance remains a commodity that is needed most by those who can least afford it, so a rise in IPT would have badly dented the appetite for non-compulsory covers as Brits continue to tighten their belts.

However, the new solvency requirements are a different matter.

On the face of it, this is a big win for the UK’s underwriters. There have long been complaints from insurers over the level of reserves they were forced to return to balance their underwriting exposures - but the life insurance market was far more vocal about this than their non-life peers.

For insurers focused on domestic markets, the relaxation in solvency levels will be taken in their stride. However, for the London market and those with international operations, there is likely to be barriers to be faced.

Firstly, it will be an uphill task to obtain equivalency from the European Union (EU). Brexit has seen the EU regulators happy to drag their heels on any moves to build bridges with the UK financial services market.

What has to be of real concern, however, is the industry chatter that the UK government went against the advice of the Bank of England over the new solvency requirements.

The terse statement from the Prudential Regulation Authority gives some weight to the view that Whitehall and Threadneedle Street have not seen eye to eye on the solvency regime.

Where does this leave the market? In all honesty, there will be winners and losers and it will be interesting to see what the London market has to say about the dawn of a new solvency system in the UK.