The Bank of England and FSA have published a joint paper, The Bank of England Prudential Regulation Authority Our approach to insurance supervision, explaining the how the future Prudential Regulation Authority (PRA) will approach insurer regulation.
Recognising that the risks posed by insurers are different from the other firms it will supervise, the PRA will have a specific insurance objective and a distinct approach to supervising insurers, the regulators said.
The PRA will be responsible for the prudential supervision of over 2,000 firms, of which around half will be insurers, with the remainder deposit-takers and certain investment firms.
The PRA will supervise companies specialising in life insurance, general insurance and wholesale insurance (including reinsurance), and companies that undertake a composite of these activities.
It will regulate 636 general insurers, around 300 of which operate in the UK under a passport from other EEA countries, 123 life insurers (of which 70 will be EEA authorised), 133 friendly societies and around 132 insurers in the London market.
FSA chief executive and PRA chief executive designate, Hector Sants, said: “The PRA will be a focused prudential regulator for insurers. In setting out the PRA’s approach to insurance supervision, we have looked closely at the lessons arising from previous episodes of insurance company distress.
“Reflecting the uncertain nature of insurers’ liabilities, prudential insurance regulation will be forward-looking and judgement-based. Much of the PRA’s proposed approach will be achieved in practice through the application of Solvency II, the new European framework for insurance supervision.”
Julian Adams, FSA director of insurance, said: “We recognise that the nature of insurers’ business models exposes them to a different set of risks than banks. The PRA’s regulation of insurers will seek to promote the safety and soundness of insurers to deliver two aims: to secure appropriate protection of policyholders and to contribute to the stability of the system.
“The PRA will concentrate its resources and actions on those insurance firms and issues that pose the greatest risk to its objectives. The risk assessment framework for insurers will explicitly take into account the need to protect policyholders, the various risks to which insurers are exposed and the different way in which insurers can fail.”
Andrew Bailey, FSA director of UK banks and building societies and PRA deputy chief executive designate, said: “Insurance companies can in some circumstances pose risk to the stability of the financial system – via a range of channels, including as providers of funds to banks. The insurance supervisors will work closely with the Financial Policy Committee, who will assess system-wide risks.”
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