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Investing in Britain is safest bet, minister tells insurers

Published 27/02/2024, 10:32
Updated 27/02/2024, 13:10
© Reuters. FILE PHOTO: The Union Jack flag is flown outside the Houses of Parliament, in London, Britain February 9, 2022. REUTERS/Tom Nicholson/File Photo

By Huw Jones

LONDON (Reuters) -Britain's insurers must step up to the plate and use billions of pounds in freed-up capital to invest in growth companies and infrastructure, financial services minister Bim Afolami said on Tuesday.

Following Britain's departure from the European Union and against Bank of England opposition, Britain has scaled back capital rules for insurers, seen as a key "Brexit dividend" for the financial sector, in the hope of channelling funds into investment for growth, though the EU has approved similar reforms as well.

"I know that the insurance sector has a complicated relationship with risk," Afolami told an Association of British Insurers' (ABI) conference.

"But trust me when I say that with these reforms ... investing in the UK is the safest bet that you can make, but you must take that step forward with us."

Faced with strapped finances, Britain needs to rely on private sources of funds, such as insurers, pension schemes and securities markets, to pay for green technology and infrastructure, typically riskier assets than government bonds, a staple for the sector.

The ABI has said the capital easing could free up to 100 billion pounds ($126.83 billion) for investment over 10 years, but Bank of England officials have suggested that the finance ministry should check that insurers are investing the cash.

The ABI has set up "delivery forum" whose interim report this month said it would work with regulators to "test tricky investment areas", and look at new investment models for infrastructure.

Tulip Siddiq, financial services spokesperson for the Labour Party, tipped in the polls to win a general election expected this year, told the conference that "active government" must also play its part in making the most of investment opportunities from the freed up insurance capital.

The insurer reform is part of a raft of post-Brexit measures to bolster the financial sector's global appeal, including a new remit for regulators to take the sector's international competitiveness and growth into account when writing rules.

Afolami acknowledged it was still an "open question as to whether they will honour the spirit of the objective".

© Reuters. FILE PHOTO: The Union Jack flag is flown outside the Houses of Parliament, in London, Britain February 9, 2022. REUTERS/Tom Nicholson/File Photo

The finance ministry is considering new rules for "encouraging the establishment and growth" of "captive" insurers, or firms setting up in-house insurance subsidiaries to better tailor coverage, with a public consultation in coming months, he said.

($1 = 0.7885 pounds)

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