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Daily Insurance Industry News
Tuesday 20th of February 2018
October 14, 2011

Solvency II DB pension fund shock

by Gill Montia

Story link: Solvency II DB pension fund shock

Confederation of British Industry (CBI) director general, John Cridland, has hit out at proposed Solvency II capital requirements, calling them a two-in one hit from “Laboratoire Barnier”, in a reference to EU Commission, Michel Barnier.

Speaking at the CBI’s annual dinner in London last night, Mr Cridland claimed that the major impact of Solvency II on insurance companies would be accompanied by a second hit for defined benefit (DB) pension funds.

Under Solvency II proposals, pensions funds could be forced to follow the same standards as insurance firms, meaning that they have to plan for 1-in-200 year incidents.

In such a scenario, funds would have to double technical provision levels, meaning that around half a trillion pounds could be taken from business investment funds, hammering both growth and job creation.

The director general said all businesses with DB liabilities will be affected, whether or not their schemes are closed.

Mr Cridland went on: “Once the money’s in the scheme, there’s further risk. European pension funds hold £2trn of assets, much of it in the UK.

“Taking away the need to seek a significant return on investments would lead to a massive flight from equity and corporate bonds into high-grade government bonds.

“To get DB schemes compliant with Solvency II, they’d need to sell equity worth more than £800bn.

“The effect of dumping that volume of stocks on already volatile markets could be catastrophic.”

According to the CBI head, Solvency II proposals are best summed up as “shockingly bad.”

 

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