Tens of billions of pounds to support levelling up and green agendas could be unleashed in post-Brexit reform of insurance regulation

Pension Insurance Corporation plc ('PIC'), a specialist insurer of defined benefit pension funds, has found that reform of Solvency II, the EU regulatory framework for insurance companies, could unlock tens of billions of pounds to invest in the UK’s infrastructure, including renewable energy and social housing, supporting net zero ambitions and the levelling up agenda, and increasing intergenerational equity. This means that the life chances and financial security of millions of people up and down the country depend on the success of reform to this key piece of financial services regulation.

In its latest report, Investment Unleashed, PIC has calculated that appropriate reform could increase its planned investment of £30 billion in productive finance1 by 2030, to £50 billion. Reform of Solvency II in the UK is currently being considered by HMT and the Prudential Regulation Authority. However, there is a real danger of missed opportunities through delay and a failure to achieve the full potential of reform, affecting the lives of millions of people.

PIC argues that current flaws in the regulation mean that it and other life insurance companies are encouraged to invest in large, well-funded companies to such an extent that the country is being deprived of the benefits of increased long-term investment in the economy. Since 2016, PIC has invested £10.9bn in productive finance. However, over the same period £10bn of productive finance investment was foregone by PIC due to overly restrictive Solvency II requirements.

PIC has determined that, with appropriate and UK-specific reform of Solvency II – now an option after Brexit - the company would have an additional £2 billion per annum to invest in productive finance in the short-term, which includes £500 million to invest in renewables or green assets. This would equate to 34 offshore wind turbines, generating 254 MW of electricity, or 14 new solar parks.

PIC also states that reform would open up an additional £450 million of investment into social housing. This equates to the funding of 15,000 additional affordable homes every year (more than 10% of the total of new social homes needed across the UK annually) with the potential for 45,000 new social homes in the first year after reform, or the energy efficiency retrofit of 53,500 social homes (meaning social housing residents would face lower fuel bills and less associated health problems from cold homes), or maintenance costs for 285,000 existing social homes.2

Tracy Blackwell, CEO of Pension Insurance Corporation, said: “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.”

Frank Gordon, Director of Policy at the Association for Renewable Energy and Clean Technology (REA), said: “REA welcomes this report and its findings. A lack of available finance can be a barrier to developing new renewable and clean tech projects, and the changes proposed would help unleash a wave of new investment that can help take us to Net Zero. Such investment will create jobs and ensure that green tech can be built quickly, while also tackling other problems like air and noise pollution.”

Ideal reform of Solvency II would:

• Preserve insurer balance sheet resilience throughout the cycle – protecting policyholder pensions – whilst discouraging investment in relatively riskier assets in overvalued markets.
• Encourage investment into productive finance throughout the cycle.
• Bank the UK’s 'Brexit Bonus' by ensuring a competitive UK insurance industry – especially when compared to insurers operating under the European Solvency II regime.

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Notes to Editors:

1. Productive finance is “investment that expands productive capacity, furthers sustainable growth and can make an important contribution to the real economy. Examples of this include plant and equipment (which can help businesses achieve scale), research and development (which improves the knowledge economy), technologies (for example, green technology), infrastructure and unlisted equities related to these sectors.” https://www.fca.org.uk/news/press-releases/treasury-bank-england-fca-productive-finance 
2. While PIC cannot commit to specific investment following Solvency II reform, the figures arising from the analysis are based upon PIC’s current investment mix.

For further information please contact:

Pension Insurance Corporation     
Jeremy Apfel                         
+44 (0)20 7105 2140
apfel@pensioncorporation.com

Apella Advisors
PIC@apellaadvisors.com

About Pension Insurance Corporation plc
The purpose of PIC is to pay the pensions of its current and future policyholders. PIC provides secure and stable retirement incomes through leading customer service, comprehensive risk management and excellence in asset and liability management. At half-year 2021, PIC had insured 270,800 pension scheme members and had £47.6 billion in financial investments, accumulated through the provision of tailored pension insurance buyouts and buy-ins to the trustees and sponsors of U.K. defined benefit pension schemes. Clients include FTSE 100 companies, multinationals and the public sector. PIC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority (FRN 454345). For further information please visit www.pensioncorporation.com