The Solvency II rules were inherited from the European Union and their reform is seen by the insurance industry and by lawmakers who supported Britain's exit from the bloc as a "Brexit dividend" to unlock billions of pounds of investment.

The so-called matching adjustment seeks to ensure that assets held by insurers generate enough cash to cover future payouts on policies and pensions.

Investing in an asset that generates cash at the right time allows an insurers to cut back on capital requirements, subject to a discount.

"We propose to adjust regulations to reflect the decisions made by the government about the level of financial resilience that should be required of insurance companies," Bank of England Deputy Governor Sam Woods said in a statement.

"These proposals aim to promote policyholder protection while enabling the annuity sector to meet its commitments to the government to increase investment in the UK economy."

The government overrode the BoE to insist on a less onerous discount to free up billions of pounds to invest in infrastructure and help transition to a net-zero economy.

The BoE said the limit it has proposed, along with other proposed reforms, would not stop insurers from meeting their stated commitments for "unlocking tens of billions of pounds for potential investments at implementation".

The BoE said it planned to publish final policy and rules on the matching adjustment during the second quarter of next year, with an effective date of 30 June 2024.

All other changes related to the Solvency II review would take effect on 31 December 2024, it said.