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Insurance resolution regime will give Bank of England new powers to manage the failure of large insurers

Following a consultation earlier this year, the government has announced plans to introduce an insurance resolution regime which will provide the Bank of England (BoE) with new stabilisation powers and tools to enable it to manage the failure of large insurers. The proposals broadly mirror the existing UK bank resolution framework – which was recently put to the test in relation to the UK arm of Silicon Valley Bank. The government notes that the "swift and decisive" resolution employed in that case emphasises the effectiveness of the UK's existing bank resolution regime.

The proposals aim to align the UK resolution regime with international standards and enhance the stability of the UK's financial system. The insurance resolution regime will enable the BoE, as resolution authority, to step in where the failure of an insurer (or multiple insurers) threatens UK financial stability. Various tools will be available to the BoE, including the ability to order a compulsory transfer of the business or shares of the failing insurer to a private sector purchaser, and the power to "bail-in" a failing insurer by writing down its liabilities. We looked in more detail at the proposals in our previous article.

The resolution regime will require larger insurers to engage in additional planning work, including in developing pre-resolution plans and engaging with the BoE on resolvability assessments. Further guidance will be issued on these requirements in due course, including how they will interact with existing PRA requirements. The government and BoE will work with the insurance industry, ensuring a reasonable lead-in time is given for any necessary changes.

The government intends to legislate as soon as parliamentary time allows, and aims for the resolution powers and tools to be available to the BoE as soon as practicable after legislation is passed.

The industry is still haunted by the failure of Equitable Life, which came close to collapse two decades ago, with policyholders losing billions of pounds and the government paying more than £1bn in compensation.


banking and finance, insurance, restructuring and insolvency