Solvency II reform could ‘unlock’ £10bn+ of productive finance investment

Reform of Solvency II, the EU regulatory framework for insurance companies, could unlock tens of billions of pounds to invest in UK infrastructure, according to Pension Insurance Corporation (PIC).

PIC’s report revealed that its planned investment of £30bn in productive finance by 2030 could rise to £50bn with appropriate reform to Solvency II, which the insurer said was being considered by the Treasury and Prudential Regulation Authority.

Since 2016, PIC has invested £10.9bn in productive finance. However, the insurer noted that £10bn of productive finance investment was forgone by PIC over the same period due to overly restrictive Solvency II requirements.

PIC argued that there were current flaws in the regulation that encouraged life insurance companies to invest in large, well-funded companies to such an extent that the country was being deprived of the benefits of increased long-term investment in the economy.

The insurer determined that appropriate and UK-specific reform of Solvency II would free up an additional £2bn per annum to invest in productive finance in the short-term, which included £500m to invest in renewables or green assets.

Renewable energy would not be the only area of infrastructure that would be affected by the reform, as PIC also stated that reform would open up an additional £450m of investment into social housing, equating to the funding of 15,000 additional affordable homes every year.

However, PIC warned that there was a “real danger” of missed opportunities through delay and a failure to achieve the full potential of reform.

PIC CEO, Tracy Blackwell, commented: “We have a once in a lifetime opportunity to channel new investment into communities across the UK, building quality homes, decarbonising our economy, creating jobs and levelling up.

“The life chances and financial security of millions of people across the country depend on the timely and successful reform of this key piece of financial services regulation.

“Success would incentivise tens of billions of pounds of long-term investment and enhance consumer protections.”

PIC’s report was supported by Association of Renewable Energy and Clean Technology director of policy, Frank Gordon, who said the potential changes could help “unleash a wave of new investment that can help take us quickly to net zero”.

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