Britain’s largest long-term savings provider has urged ministers to reform EU solvency rules that still apply in the UK to help it unleash up to £50bn in investments to revive the economy, boost infrastructure and meet climate change pledges.
FTSE 100 life insurer Phoenix Group, which has £300bn of assets under management and 13m customers, made the appeal at an event last week hosted by the prime minister, chancellor and other ministers.
Phoenix says the right regulatory and policy changes could enable it to invest £40bn-£50bn in illiquid and sustainable assets to accelerate the government’s “levelling-up” plans for revitalising poorer regions and its moves to decarbonise the economy.
“There’s a huge opportunity, and necessity, from a sustainability perspective, to get more private-sector capital from insurers and asset managers for long-term infrastructure that supports the move to net zero and the levelling-up agenda,” Andy Briggs, chief executive of the Phoenix Group, told the Financial Times.
In August, Boris Johnson and Rishi Sunak challenged the largest institutional funds to invest hundreds of billions of pounds to help drive the UK’s recovery through investments in infrastructure, the green economy and innovative start-ups.
In response, Phoenix has pledged to invest £20bn of its annuity-backing funds into illiquid and sustainable investments over five years.
With regulatory reform, the group says it could also invest 10 per cent of its £260bn non-annuity assets in similar illiquid and sustainable assets.
Phoenix is pressing the government to adopt public-private initiatives, too. “This could include first-loss lending and guarantees on infrastructure builds,” said Briggs.
But it said to fully unlock its proposed £40bn-£50bn investment it would need changes to solvency rules.
Life insurers use liability matching to make sure they do not run out of money to pay pensioners. But under the EU’s Solvency II rules, they are penalised against using certain illiquid assets in so-called matching adjustment portfolios because they are considered too risky.
The UK is currently deciding on post-Brexit changes to the regime. Bank of England governor Andrew Bailey said in a speech on Wednesday that he was an “optimist” that the rules could be reformed but not in a way that threatened customer protection.
Briggs said: “Solvency II reforms are a critical part of enabling firms to invest in productive assets. These can be done sensibly, and in a way that doesn’t compromise policyholder protection, which we as a business are focused on.”
Phoenix’s conditional pledge comes amid a general push by UK insurers for changes to the Solvency II regime that would make it easier for them to invest in a wider range of assets.
The Association of British Insurers, the UK trade association, has said changes to Solvency II rules could mean deploying £95bn of capital, though some of that could be returned to shareholders rather than reinvested.
FTSE 100 life insurer Legal & General has also called for changes to solvency rules, having already invested £30bn in “levelling up” regional economies through housebuilding and infrastructure.
The Treasury declined to comment on the Phoenix call for reforms.
One Whitehall official said the government was sympathetic to insurers’ Solvency II requests, having already carried out one consultation, with the next on proposed changes to come in early 2022.
However, ministers are less sympathetic to calls for government to offer stronger guarantees for private sector investment in risky infrastructure projects.
Mick McAteer, co-founder of the Financial Inclusion Centre, a research group, and a former board member of the Financial Conduct Authority, criticised the Phoenix plans. The finance lobby was: “aggressively and disingenuously using climate change and national economic priorities to push for deregulation,” he said.