The Times, today.
Sir John Vickers, the architect of the financial regime put in place after the 2008 crisis, has expressed concern about the Bank of England’s decision to abandon stress tests for insurers and said that Legal & General’s imminent dividend of more than £750 million should be blocked. Sir John, former chairman of the Independent Banking Commission, said: “If stress tests are on pause, then so too should be insurance company dividends, notably L&G’s, until the future is clearer.” The Bank’s decision on Thursday not to publish its 2019 stress test of insurers was a mistake, he said, and came at a time when companies’ balance sheets and their ability to withstand the shock of the pandemic should be under scrutiny.
https://www.thetimes.co.uk/article/abandoning-stress-tests-for-insurers-is-a-mistake-txt2kjx92
More to come.
[Edit] See also, my emphasis:
Sir John criticised an accounting rule that enabled insurers to flatter their capital positions. This is the so-called matching adjustment rule, which allows insurers to use a higher discount rate to value their liabilities when their assets yield more. “The fall in yields and widening of spreads will have eroded insurers’ capital levels but accounting methods partly obscure this,” he said. “The matching adjustment to capital may be more of a mask than a cushion.”
The PRA and L&G declined to comment.
