UK government has announced plans to reform Solvency II rules for the insurance sector, which is expected to unlock ‘tens of billions of pounds’ of investment and slash red tape.

The move, outlined by Financial Services Minister John Glen, is aimed at giving businesses more freedom to invest, innovate and create jobs. 

Since 2016, the country’s insurance sector has been subject to the Solvency II rules after they were introduced to align with insurance regulation across the EU.

The rules featured aspects such as how much capital insurers had to hold to counter the risk of their investments. 

Glen said: “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.

“We have a genuine opportunity to maintain and grow an innovative and vibrant insurance sector while protecting policyholders and making it easier for insurance firms to use long-term capital to unlock growth.”

The proposed Solvency II reforms include a reduction in risk margin, including a cut of nearly 60-70% for life insurers. 

The reforms also include sensitive treatment of credit risk, provide flexibility to insurers to invest in long-term assets such as infrastructure.

Furthermore, the changes are aimed are reducing reporting and administrative burden on firms.

Responding to the announcement Association of British Insurers director of regulation Charlotte Clark said: “We welcome this announcement outlining the next steps of the Solvency II review. We have long advocated for meaningful reform that fully meets the Government’s objectives and helps industry play an even larger role in the levelling up agenda and the transition to Net-Zero.

“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 policyholder protection we have.”