Vicky Saporta

  • 2022 - House of Commons - Treasury Committee - Future of financial services regulation, First Report of Session 2022–23 - 68p
    • <Words: Risk Margin, long-term products, matching adjustment, illiquid assets, matching adjustment benefit>
    • (p43) - 140. Vicky Saporta, Executive Director, Prudential Policy Directorate, Prudential Regulation Authority (PRA), and Charlotte Clark, Director of Regulation at the Association of British Insurers (ABI), both told us that the risk margin was too high and too volatile,186  and Vicky Saporta told us that the PRA expected the proposed reforms to the risk margin “to lead to a reduction for life insurers—particularly those that offer long-term products.”187
      • In a speech, John Glen MP, the Economic Secretary to the Treasury, has said that the Treasury intends to cut the risk margin by “60–70 per cent for long term life insurers.”188
    • 142. The PRA has said, in an article in October 2021, that the purpose of the matching adjustment is to recognise that “insurance firms that meet certain conditions—including close ‘matching’ of long-term assets and liabilities—are less exposed to price movements related to liquidity and allows them to value their liabilities at a higher than risk-free rate.”
      • This gives “high balance sheet stability but low risk sensitivity” and “the current design is insensitive to market signals from changes in credit spreads, and might miss some of the risks that insurers face, which in turn could lead to lower policyholder protection.”190
    • (p44) - 144. When the Economic Secretary announced the proposed changes to Solvency II, he stated that their combined impact could release “possibly as much as 10% or even 15% of the capital currently held by life insurers allowing them to put tens of billions of pounds into long-term productive assets, with multiple benefits country-wide.”191  
    • 145. Charlotte Clark, Head of Regulation at the Association of British Insurers, told us that the matching adjustment should be expanded to include more kinds of illiquid assets.192
      • She told us that this would enable insurers to invest in illiquid assets with “predictable returns”, such as housing and green infrastructure, more quickly and more easily.193
    • 146. However, Vicky Saporta, Executive Director, Prudential Policy Directorate, Prudential
      Regulation Authority (PRA), told us that making such changes was not without risk.

      • The benefit that the insurance industry as a whole was gaining from its use of the matching adjustment enabling it to reduce the capital it was holding, was greater than the total capital requirement for the life insurance industry.
      • She explained: We are concerned that currently the matching adjustment benefit itself— by the way, that stands at a staggering £81 billion as at the end of the year 2020, above the total capital requirement for the life industry, which is £76 billion—might be too high. [ … ]
      • We would like to see an adjustment to the matching adjustment benefit for the sake of protecting the annuitants and the policyholders.194 

2022 - House of Commons - Treasury Committee - Future of financial services regulation, First Report of Session 2022–23 - 68p

  • (p21) - 54. Vicky Saporta, Executive Director, Prudential Policy Directorate, Prudential Regulation Authority (PRA), told us that regulators follow the objectives which they are given, rather than making judgements about social welfare:
    • As a regulator, our objective is not really to make judgments about social choices and what particular activity might promote general usefulness and welfare.
    • We have to do what our objectives tell us to do: to promote financial stability in our case and to ensure that firms are safe and sound and so on, rather than ensuring that each product that firms come up with has a particular usefulness in society.
    • It is just not part of our objectives.62