The British government’s plan to overhaul insurance capital rules has increased the annual risk of failure in the life-insurance industry by about 20%, Bank of England Governor Andrew Bailey told lawmakers.

In a letter to the Treasury Committee on Monday, Mr Bailey said that if the government’s plan to overhaul the Solvency II rules went ahead, the probability of failure in the life insurance industry would rise from 0.5 per cent to 0.6 per cent.

If the central bank’s preferred set of reforms “were to proceed, we estimate that the increase would be less than half,” the letter noted.

The Bank of England’s Prudential Regulation Authority has long opposed wholesale deregulation of Solvency II, even arguing that it should be tightened in some areas. The government’s proposed reforms, revealed in November, went against the PRA’s recommendations and did not tighten some risk measures.

The PRA said at the time that “key decisions will now be taken by Parliament and we will faithfully implement them.”

The changes are part of the government’s plan to revive Britain’s flagship financial sector. In December, Jeremy Hunt, UK chancellor of the exchequer, outlined about 30 reforms aimed at “accelerating growth” for the country’s banks, insurers and asset managers.