Insurance boss declares that new Solvency II safety rules were a waste of £5bn

Legal & General chief executive says money would have been better spent on British infrastructure

Michael Bow
Wednesday 16 March 2016 00:55
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Wilson: 'Those billions should have gone into houses and roads'
Wilson: 'Those billions should have gone into houses and roads'

Billions spent by the insurance industry to comply with new EU-wide capital rules have been a waste of money, the chief executive of Legal & General has said.

Nigel Wilson said most of the sums spent complying with the Solvency II regime would have been better spent on British infrastructure. The UK has spent £4bn to £5bn on Solvency II, and 80 per cent of that has been a waste,” Mr Wilson said, “That should have gone into houses and roads.”

His comments are the strongest rebuke yet to Solvency II, which has come under scrutiny over the cost and time needed to implement the initiative.

L&G is one of the biggest infrastructure investors in the UK. Through Legal & General Capita, it invests in housebuilding and energy projects, and has promised to spend £15bn over the next few years.

But insurers have been distracted by the solvency requirements, which have cost thousands of man hours and millions of pounds.

L&G spent £170m alone between 2009 and 2015 working to comply with the rules, which came into force on 1 January.

Rival insurance giant Prudential reported £70m of implementation costs between 2013 and 2015.

L&G said that it had a £5.5bn surplus, giving it a solvency ratio of 169 per cent. A ratio of 100 per cent shows the company has enough capital to withstand big shocks in underwriting and investment.

Aviva reported a ratio of 180 per cent last week while RSA had 143 per cent, Prudential 193 per cent and Standard Life a 163 per cent ratio.

However, the figures have been met with a shrug of the shoulder by many in the industry, who say they add little to their understanding of the businesses. The industry’s own regulator, the Prudential Regulation Authority (PRA) chief Andrew Bailey, has criticised the rules, calling them “vastly expensive”.

He also hinted at a tweak to the rules in future. PRA insurance head Sam Woods also admitted that the UK interpreted the rules too strongly, while Treasury Select Committee chair Andrew Tyrie dubbed Solvency II “an object lesson in how not to make law”.

L&G boosted its dividend by 19 per cent to 13.4p but Mr Wilson acknowledged it would take investors “a while to forget” a 2009 dividend cut that scarred many L&G backers.

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