Bank of England calls on UK to hold infrastructure insurers to account

LONDON (Reuters) – The government should check that insurers are spending up to 100 billion pounds ($125 billion) in the British economy after its capital rules were eased, Bank of England deputy governor Sam Woods.

Britain is repealing capital rules for insurers from the end of this year and the industry has said this would make up to 100 billion pounds available to invest in infrastructure, but some lawmakers have doubts that is really the case.

“I think it can happen, but I can’t guarantee it,” Woods told a subcommittee of parliament’s Treasury Select Committee.

The Chancellor’s Office overruled the Bank of England to relax some capital rules more than Woods had wanted, which could make an insurance company’s bankruptcy more likely.

Lawmakers asked Woods if the central bank could monitor investments to ensure the extra money doesn’t end up being used to pay dividends to shareholders or buy assets abroad.

Woods said it would be beyond the Bank of England’s mandate to order insurers to allocate investments and that it was up to the government to monitor how the freed-up capital was spent.

“The government should do that, and I think it will. It has a strong incentive to do that,” Woods said.

Charlotte Gerken, executive director of insurance supervision at the Bank of England, said investing £100 billion over the next 10 years appears achievable given how the transfer of liabilities from pension plans to insurers is accelerating.

This means that insurers will have more money to invest; currently only a modest portion of their portfolios is in infrastructure, Gerken said.

But achieving the goal will also depend on whether insurers have the right risk management skills and capabilities to manage assets they haven’t managed before, he said.

Conversations with chief executives of big insurers show they are serious about investments, he said, adding that the Association of British Insurers has set up working groups on investments in energy generation and transmission and housing.

($1 = 0.8008 pounds)

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