The Prudential Regulation Authority has warned insurers risk being exposed to “unexpected or poorly understood risks” as margins are squeezed and new products are launched in the wake of the Budget.
The Budget reforms, announced in March, will mean anyone aged 55 or over will be able to take their entire pension pot as cash. The changes, which come into force in April next year, are expected to reduce annuity sales by up to 75 per cent.
Addressing the All Party Parliamentary Group on insurance and financial services, PRA director of life insurance Andrew Bulley warned the decline in annuity business following the Budget will squeeze insurers’ margins.
He said: “[The Budget] will undoubtedly give rise to a fresh set of prudential regulatory issues and so we will be considering how the changed environment will affect firms and what actions are needed to mitigate the risks that arise.”
Bulley says the PRA will be speaking to insurers to check new products do not see them “becoming exposed to unexpected or poorly understood risks.”
Bulley also raised concerns that if there is more consolidation within the insurance industry there could be risks associated with integrating different systems.