PRA’s Sam Woods: No intention to resign over Solvency UK disagreements

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The deputy governor for regulation of the Bank of England and chief executive of the Prudential Regulation Authority has no intention to resign over different views held by the regulator and government on how insurers’ capital rules should be reformed. 

Sam Woods argued it would be “a strange thing to do”. 

Disagreements between the PRA and the Treasury surfaced last year when the regulator wanted to recalibrate the fundamental spread of the matching adjustment as part of the reforms of Solvency II in the UK. This was ignored by the government, saying it would increase capital requirements and introduce significant volatility to insurers’ balance sheets. 



Key changes of the reforms include a reduction in the risk margin by 65% for life insurers, keeping the existing methodology for calculating the matching adjustment largely unchanged, broadening assets that are eligible to be used to match insurance liabilities and changes to the treatment of sub-investment grade assets.

Woods assured insurers last month that the PRA would not reverse the government’s decision. However, interests from MPs grew after BoE governor Andrew Bailey wrote to the Treasury Committee saying there is a 20% higher chance of insurance firms collapsing due to the reforms. 



The annual risk of a failure will rise from 0.5% to 0.6% if the changes are implemented, a “relative increase in the probability of failure of around 20%”, according to the Bank.

At an evidence session yesterday, Woods stressed it was a change “from one relatively small number to another relatively small number” and understood the government had to strike a balance with its growth and investment objectives.  

He was then asked if, given the disagreements between the parties, he felt “so strongly that this is wrong” that he was prepared to resign. 

“No, I have no intention to resign, nor have I threatened to resign as part of the process. It would be quite a strange thing to do,” he said. 

“Our job in this process is to surface things we think are problems, so they can be considered in the debate.”

Woods added that despite differing views on the reforms, the regulator has decided to accept the government’s final view for practical reasons.

He added: “There's also a practical point [which] is we need to get on with this. We haven't got any new points of evidence that we're reporting this but we've made all the points in public over the last year or two.”

Woods also explained that the government has committed, subject to parliamentary approval, to give the PRA additional powers to manage risks in the insurance sector. 

“The most relevant ones are an ability for us to require senior managers to attest that the level of matching adjustments that have been taken is commensurate with the risks that are retained by the firm or rather the risks that are not retained by the firm,” he said. 

Asked whether the new regime will be less safe, Julia Black, external member of the BoE’s Prudential Regulation Committee, said: “If the government [sees] there are benefits to take on that risk, and those benefits come from wider investments in infrastructure assets, in particular, that’s absolutely a judgment for the government to make.”

Do you think the PRA’s concerns are valid?

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