Against the backdrop of the FCA announcement last week that they will be conducting a full market study into pricing practices in retail motor and home insurance, the Prudential Regulation Authority (PRA) release of their updated ‘approach to insurance supervision’ document, released on the same day, has perhaps slipped slightly under the radar screen.

The “Prudential Regulation Authority’s approach to insurance supervision” is not a new policy as such, but does reflect new and evolved thinking from the PRA on the way they seek to deliver on their mandate to

  • promote the safety and soundness of the firms it regulates, focusing on the adverse effects that they can have on the stability of the UK financial system; and
  • an objective specific to insurance firms, to contribute to ensuring that policyholders are appropriately protected.

The document makes clear the three principles they apply in approaching this.

  • their supervisors rely on judgement in taking decisions;
  • they assess firms not just against current risks, but also against those that could plausibly arise further ahead; and
  • they focus on those issues and firms that are likely to pose the greatest risk to their objectives.

The Senior Managers and Certification Regime, coming into effect for insurers on 8th December 2018, introduces important new controls that we expect the PRA to rely heavily on in their work. It requires firm to “identify the most senior individuals responsible for key areas and activities, including the delivery of supervisory priorities, and to document their responsibilities.”. To underline the degree to which the PRA expect those individuals to take the changes seriously, they go on to say that “We can and will take supervisory or enforcement action if our red lines are crossed.”

There may be nothing specifically new in this update, but in his foreword, Sam Woods, CEO of the PRA, has made it very clear what is expected from firms in the new regulatory environment.

Two other interesting points do arise. The first is that the PRA is now looking at the way cyber threats could pose a risk to firms’ resilience against the backdrop of the consumer detriment that may arise from any failure of systems. With the increasing reliance on technology and digital delivery of services, the PRA has made it clear that a robust cyber risk assessment is now an area of regulatory interest.

The second point is also one of business preparedness and resilience. BREXIT. The Temporary Permissions Regime (TPR) has been introduced as a stop-gap measure for EU27 insurance firms looking to continue business in the UK. A government deal with the EU on Financial Services may of course change the playing field again!

One aspect that caught our attention was the new reference to ‘Insurance Special Purpose Vehicles (ISPVs)’. ISPVs require authorisation by the PRA and FCA. The legal and regulatory requirements governing establishment and operation of ISPVs can be found on their website which also outlines the different stages of the authorisation process, including expected timelines. It’s a somewhat complex set of rules given multiple regulators are involved.

If you would like to discuss any aspect of the PRA’s approach to insurance supervision and the way it affects you personally as a ‘Senior Manager’, your business as a regulated firm or are involved with or considering setting up an Insurance Special Purpose Vehicle and want some advice, please do feel free to contact myself or Jason Jones in complete confidence.

Advisory & Resourcing

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