PwC UK underlines potential high-risk asset investment from the insurance industry in light of Solvency II reform

According to the latest research conducted by PwC UK, the Government’s proposed Solvency II reform has the potential to unlock investment from the insurance industry into the UK economy.

Related topics:  PwC,  risk management
Protection Reporter
25th July 2023
Risk Management
"Creative ways to accelerate growth must be championed, however, as our research shows it pays to consider how any additional risks can be monitored and managed."
- Alex Bertolotti, leader of insurance at PwC UK

Last week, Jeremy Hunt launched the ‘Mansion House Reforms’ which could increase pensions by over a £1k p.a. in retirement for an average earner who saves over the course of their career.  These reforms will also unlock up to £75bn of additional investment from defined contribution and local government pensions, delivering tangible benefits to pension savers.

Meanwhile, the ‘Mansion House Reforms’ also include a consultation of the Local Government Pension Schemes in hopes of doubling existing investments in private equity to 10% as well as plans to improve outcomes for savers in a “highly fragmented” market. With 5,000+ Defined Benefit (DB) Schemes, the government hopes to establish the “Superfund” regime to provide sponsoring employers and trustees with a new way of managing liabilities.

READ MORE: Chancellor’s Mansion House Reforms to boost typical pension by over £1,000 a year

Discussing these reforms, PwC UK highlighted that the consolidation of DB pension schemes will allow separation from the sponsor, in much the same way as insurance, but to ensure that these two regimes are not seen to be in competition with each other, the government must tread carefully.

Furthermore, PwC UK underlined that the new Solvency II rules will “make certain assets more attractive to insurers,” especially infrastructure assets in their construction phase as well as high-risk assets common in ‘greenfield’ projects that typically bear high technological and development risks.

Commenting on these findings, Alex Bertolotti, leader of insurance at PwC UK, has said:

“The proposed Solvency II reforms and those laid out in the Mansion House address are clearly a positive step that sees us well on the way to ensuring that we have a package that provides additional investment in the UK. When fully implemented we could see the opportunity for billions of investment fuelling the economy and propelling levelling up. However, our deep analysis into the embedding of Solvency II shows the associated risk management challenges.

“Similarly, a permanent “Superfund” regime will require care to ensure that risks are appropriately managed and mitigated. It is five years since Superfunds were first mooted, and clarity on how they will operate and be regulated is paramount to achieve the objectives of improving member outcomes, whilst attracting investment into the wider economy.”

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