By Huw Jones

LONDON (Reuters) – Britain will unlock “tens of billions of pounds” of insurance sector capital that should boost the economy through infrastructure investment, financial services minister John Glen said on Monday.

The six-year old ‘Solvency II’ capital requirements were inherited from the European Union when Britain left the bloc’s orbit at the end of 2020.

The long-flagged reform is seen by insurers and Brexit supporters as an early test of how Britain can exploit its freedom to write its own financial regulations, and the government is keen to show tangible benefits from leaving the EU.

“EU regulation doesn’t work for us anymore and the government is determined to fix that by tailoring the prudential regulation of insurers to our unique circumstances,” Glen told the Association of British Insurers’ (ABI) annual dinner.

Policyholder protection will remain a top priority, he said.

The Association has said changes to the risk margin, matching adjustment and reducing reporting requirements were its top priorities to unlock 95 billion pounds($129.25 billion)of capital.

Glen said a full consultation document in April will include all three steps, followed by more detailed technical consultation by the Bank of England later in the year.

The proposals will include a substantial reduction in the risk margin, as much as 60% to 70% for long term life insurers, he said, referring to capital required in case policies must be transferred to another insurer in the event of a collapse.

There will be a more sensitive treatment of credit risk in the matching adjustment, or the capital relief from matching long term assets with liabilities.

Insurers will see a “significant” increase in flexibility to invest in long-term assets such as infrastructure to help the economy combat climate change and a “meaningful” reduction in reporting and administrative burdens, Glen said.

“This announcement is a positive step that sees us well on the way to ensuring that we have a package that provides additional investment in the UK, without undermining the high standards of policy holder protection we have,” said Charlotte Clark, the ABI’s director of regulation.

The EU has already proposed a draft law https://ec.europa.eu/commission/presscorner/detail/en/ip_21_4783 to reform Solvency II, saying it could release 90 billion euros ($101.88 billion) of capital in the short term, followed by about a third of this annually in the longer term.

($1 = 0.8834 euros)

($1 = 0.7350 pounds)

(Reporting by Huw Jones; Editing by Tomasz Janowski)