Analysts at J.P. Morgan highlight a potential positive of the July general election in the UK, stating that it could accelerate positive regulatory change that could ultimately support the country’s insurance industry.
Although neither manifesto commitment from the two parties states any major change or immediate impact on UK insurers and reinsurers, analysts have suggested two important themes of Workplace Pensions and Solvency UK reform.
In both cases, J.P. Morgan expects either victory would call for an increase to the minimum contribution rate in workplace pensions. The current contribution rate of 8%, bifurcated as 3% from employers and 5% from employees, is low in comparison to international standards.
The Association of British Insurers has previously called for these contribution rates to be increased to 12%, with a higher contribution from employers as well as individuals. J.P. Morgan believes the momentum could increase following the election, although governments will be mindful of the current cost of living pressures in the UK.
This, analysts believe, would benefit consumers by increasing their pension pots and would support UK life insurers that together account for more than 70% of AUA in UK Workplace Pensions.
The manifestos also talk about accelerating Solvency II/Solvency UK reform. Most of the initial legislative action to reduce burdens on UK life insurers to invest in productive assets like infrastructure is already in place, explain analysts.
Key decisions are still pending and policies need to be finalised about how some of this will be implemented, particularly around regulatory approval and calculation of the Matching Adjustment in the Solvency II rules. The PRA is expected to publish a policy statement setting the final rules for the Matching Adjustment in mid-2024.
J.P. Morgan expects any new government to renew momentum to ease the conditions for UK life insurers to promote investment in UK infrastructure and unlisted assets, supporting companies in the bulk annuity market such as Aviva, Just Group, Legal & General, and Phoenix.
