One third of insurers authorised by the Prudential Regulation Authority (PRA) are 'in some form' of wind down; Paul Fisher of the PRA has said.
Speaking at the Westminster Business Forum, Fisher, deputy head of the PRA and executive director, insurance supervision said the PRA recognised life insurers' role as a source of stable financing for corporates, infrastructure and mortgages.
However Fisher warned that the PRA "must consider" the wider financial stability angles, avoiding undue influence on the asset allocation behaviour of insurers.
He said: "Solvency II should not materially drive investment decision-making except in so far as it helps to make certain that insurers fully understand the risks that they take."
Insurers will also need to be able to demonstrate they do not rely upon third parties for information on their investment risks as part of the Prudent Person Principle within Solvency II.
Fisher emphasised that non-executive board members do not need to be tehnical experts in risk modelling but boards collectively need to have multiple measures available for managing their business models.
Fisher said: "It is not the PRA's role to make sure no insurer fails. However, we are concerned that any failure is orderly and manageable.
"We seek this in conjunction with appropriate policy holder protection. For example, when business models become challenged we may seek to secure manageable and orderly wind-down, as has been seen in the past in this sector."
He also added: "The PRA believes the UK industry is in a good position, having had the UK risk-based ICAS regime for around ten years. We are therefore not looking to use Solvency II as an opportunity to raise capital requirements across the board."
Fisher said: "The benefits of Solvency II do not come from the improved prudential regime alone. Insurance markets across the EU have been fragmented. The move towards a more co-operative framework will widen existing opportunities and help create new ones."
