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House of Lords written question – answered on 20th July 2011.

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Photo of Lord Myners Lord Myners Labour

To ask Her Majesty's Government what is their response to the conclusion of the Bank for International Settlements that the current proposals under Solvency II are likely to have a significant adverse effect on the availability of equity finance for small and medium-sized enterprises and infrastructure.

Photo of Lord Sassoon Lord Sassoon The Commercial Secretary to the Treasury

Solvency II will require insurers to assess the risks they are exposed to on both the liability and the asset side of the balance sheet and to hold capital commensurate to the underlying risks. The European Commission has proposed a treatment of equity holdings, and of fixed income products, on the basis of an objective assessment of a 99.5 per cent probability (within a 1 year time horizon) that firms will be able to meet their obligations. This approach was confirmed when the Solvency II Directive was adopted in 2009.

A wide range of international organisations have commented on the effects that Solvency II could have on the investment patterns of the European insurance industry, including on the availability of equity finance for small and medium-sized enterprises and on infrastructure.

The Government give appropriate and proportionate weight to the views of such organisations when formulating its overall negotiating position.

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