Insurance

International Association of Insurance Supervisors  

IAIS Roadmap – IAIS publishes Roadmap for 2023-24 – 11 January 2023 

The International Association of Insurance Supervisors (IAIS) has published its Roadmap for 2022-23, which sets out the details of its projects and activities over the period. These include:

• finalising the development of global standards, in particular, the Insurance Capital Standard (ICS) for Internationally Active Insurance Groups (IAIGs);

• assessing trends and risks in the global insurance sector through the Global Monitoring Exercise. The IAIS describes this as an important pillar of the holistic framework for the assessment and mitigation of systemic risk;

• promoting effective supervisory practices, particularly in response to accelerating trends in the global insurance sector, including growing inflationary pressures, changes in monetary policy in several large economies and increased geopolitical tensions; and

• supporting and assessing the implementation of agreed global standards and assessing their comprehensive and consistent implementation, including the macroprudential supervisory measures that form part of the holistic systemic risk management framework.

The IAIS indicates that it will also continue responding to the emerging and accelerating risks, challenges and opportunities facing the insurance sector, including climate-related risks, cyber risks, operational resilience, digital innovation, financial inclusion and issues around conduct and culture. Notably, the IAIS will publish two reports related to cyber and operational risks and will issue two consultations on climate-related supervisory practices to promote a globally consistent, adequate response to the risks posed by climate change.

IAIS 2023-24 Roadmap

Press release

Prudential Regulation Authority

Transitional measure on technical provisions – PRA publishes statement on recalculation – 6 January 2023

The PRA has published a statement on the recalculation of the transitional measure on technical provisions (TMTP).

Under the Solvency II Regulations 2015 (SI 2015/575), insurers are permitted to carry out a recalculation of the transitional measure provided they present sufficient evidence to the PRA of a material change in risk profile. In its Supervisory Statement on ‘Maintenance of TMTP under Solvency II’ (SS6/16), the PRA states that risk profile changes that may trigger a recalculation include changes in operating conditions, such as a change in interest rates, or market prices of other financial assets, leading to revised market risk exposures. In the PRA’s view, movements in risk free rates during the second half of 2022 meet the threshold for a material change in market conditions, potentially leading to a change in firms’ risk profile.

The PRA indicates it will accept applications from firms to recalculate TMTP as at 30 December 2022. In any application, the PRA expects firms to be able to demonstrate that a material change in risk profile has occurred. Firms should note that, in order to expedite the application process, the PRA expects firms to use their existing TMTP calculation methodologies in their applications.

PRA statement on the recalculation of the Transitional Measure on Technical Provisions

Insurance supervision - PRA’s 2023 priorities – PRA publishes Dear CEO letter – 10 January 2023 

The PRA has published a Dear CEO letter from Charlotte Gerken, Executive Director of Insurance Supervision, and Shoib Khan, Director of Insurance Supervision, of the PRA to the CEO of life and general insurers on its supervisory priorities for 2023. The PRA’s overarching supervisory aim is for the insurance sector to be able to provide financial protection and security to policyholders at all times, including times of stress. Its priorities for 2023 include the following: 

• Financial resilience: For life insurers, growing concentrations, in particular of assets that are internally rated and valued, may result in greater exposure to credit and concentration risk. The PRA expects life insurers to stress test their capital planning against prolonged adverse credit scenarios robustly. In addition, for general insurers, 2023 will likely see a continuation of pressures on claims inflation and ultimately additional uncertainty around future claim settlement costs. The PRA expects general insurers to factor general and social inflation risk drivers into their underlying pricing, reserving, business planning and capital modelling.

• Risk management: Firms should take proactive steps to assess the adequacy of their risk management and control frameworks. The PRA expects firms to assess their credit and counterparty credit risk management capabilities in light of widening credit spreads, rating downgrades and defaults. In addition, recent events, such as the liability-driven investment shock, has highlighted gaps in insurers’ liquidity risk frameworks. The regulator expects insurers to test the resilience of liquidity sources to market dysfunction and to re-evaluate potential liquidity demands created by the use of derivatives for risk management.

• Implementing financial reforms: The PRA will seek to engage constructively with affected firms on the technical details of reforms announced by the government in relation to Solvency II in advance of formal consultation.

• Reinsurance risk: The PRA expects UK authorised firms to consider their compliance with the Prudent Person Principle (PPP) in relation to the risks associated with their reinsurance activities. The PRA notes that insurers need to consider the reinsurer’s resilience over the whole duration of relevant exposures, as well as the potential impact from a mass recapture event where large concentrations to a small number of counterparties exist.

• Operational resilience: Insurers must ensure their important business services can remain within impact tolerances even when relying on third party providers.

• Ease of exit: The PRA will consult in 2023 on requirements for insurers to prepare exit plans to a level of detail commensurate with the size and impact of the insurer. Insurers are expected to consider how they might exit the market if the need arose, what the obstacles might be and how such obstacles might be overcome.

PRA Dear CEO Letter: Insurance supervision 2023 priorities

Financial Conduct Authority  

Insurance guidance for the support of customers in financial difficulty – FCA publishes Consultation Paper (CP23/1) – 11 January 2023 

The FCA has published a Consultation Paper (CP23/1) on insurance guidance for supporting customers facing financial difficulty. This will replace parts of the FCA’s October 2020 guidance issued to insurance and premium finance firms in relation to the treatment of customers in financial difficulty due to the COVID-19 pandemic. The proposed replacement guidance will extend to all retail and commercial customers of non-investment insurance policies and include all firms subject to the ‘Insurance: Conduct of Business Sourcebook’ (ICOBS).

The aim of the guidance is to reduce the impact of financial difficulty on customers, help them maintain an appropriate level of insurance that they can afford and reduce the risk of customers losing appropriate insurance cover that is important to them. The proposed guidance will insert a new section into ICOBS, ICOBS 2.7 ‘Customers in financial difficulty’, which will build on ICOBS 2.5-1R which requires a firm to act honestly, fairly and professionally in accordance with the best interests of its customer (‘the Customer’s Best Interest rule’), as well as the Consumer Duty obligations under Principle 12 and in PRIN 2A.

The consultation closes on 11 March 2023. Following this, the FCA will consider the feedback it receives and aim to publish a final policy statement in Q2 2023. If the guidance is made, the FCA intends to bring it into force on 31 July 2023.

FCA Consultation Paper (CP23/1): Insurance guidance for the support of customers in financial difficulty

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