Sam Woods: Embarking on a new voyage? Solvency II in context Text of The Insurance Institute of London Lecture by Mr Sam Woods, Executive Director of Insurance Supervision of the Bank of England, at Lloyd’s of London, London, 27 January 2016. *  *  *  I am grateful to Kayleigh Guinan and Mark Cornelius for their assistance in preparing this speech. I am also grateful to Norma Cohen (Bank of England), Dr Adrian Leonard (Cambridge), Professor Philip Rawlings (Queen Mary) and Robert Thoyts (FCA) for their views and input. Good afternoon. The good ship Solvency II is now afloat. It has taken a long time to make it seaworthy. Some might question whether we need this newly improved vessel. Indeed, some might challenge whether we should have a ship at all. But that is largely academic, given we are now under way and in light of the gargantuan efforts insurance firms and regulators have put into getting us to this point. In my speech today, I would like to look at this development in the wider context of insurance history. First, I would like to offer a brief view on why, looked at through the lens of today, we regulate insurance companies at all. Second, we will take a very whirlwind tour of 5,000 years of insurance activity, for the single purpose of pointing out that for at least four-and-a-half of those five millennia there was very little regulation of insurance, if any.
Such examples are not representative of the modern day insurance companies established since the 19th century. But I include them to illustrate that the principles of insurance were very much alive as far back as our earliest civilisations – and mostly without any controls or regulation around them. So what changed? Enter the state This brings us to my main theme today: the interest of the British state in the affairs of insurance companies. My aim is not to do full justice to this field of history given the rich body of academic literature available, but – in order to see Solvency II in context – to give a flavour of the sorts of philosophies and motivations that seem to me to have guided the British state’s involvement through time. Most textbooks will reference marine risk as one of the earliest forms of insurance in the UK. But evidence of one of the first genuine insurance policies suggests that whilst the first marine contract may well have been written in nearby Lombard Street, the risk was not taken on by British underwriters – instead, it was underwritten by Italian counterparts temporarily resident in London 5. Indeed, throughout this period, there are several mentions of insurance interactions between London and the Italian regions of Lombardy and Tuscany 6 – hence the  3  Lewin (2003). 4  Ibid. 5  Ibid. 6  Ibid.