Insurance ERM this morning on Sam Woods’ comments to the UK Treasury Committee last Monday.
“Dean Buckner, policy director of the UK Shareholders’ Association, welcomed Woods’ admission the new regime would put policyholders at more risk.
He has repeatedly argued how the use of the matching adjustment grants life insurers upfront capital against future investment returns, which may not emerge, and therefore puts firms at risk of running out of capital.
“Our members are increasingly fearful of investment in life insurance companies, given the tendency to decreasing levels of capital, and increasing levels of risk. We thank Sam Woods for speaking out. However, we are disappointed that the government appears to be ignoring these valid concerns,” Buckner said.”
At the same time, the Bank has published the results of its insurance ‘stress test’. Scare quotes, because
In the spread widening stress, the MA increases to offset most of the corresponding fall in asset values within the MA portfolio; and balance sheet deterioration through increased credit risk is not observed until assets start to downgrade. While this result is to be expected under the regime, it does illustrate that the MA does not automatically take account of market signals relating to elevated credit risk at the point where they start to come through
The exam that no firm can fail.