Featured Product

    David Rule of BoE Discusses Issues in Insurance Supervision

    September 27, 2018

    At a conference in London, David Rule, the Executive Director of Insurance at BoE offered an update on progress toward a global Insurance Capital Standard (ICS) and discussed the fledgling UK market for Insurance-Linked Securities and the new insurers unit of BoE. He also reiterated the messages on underwriting and reserving in wholesale insurance and reinsurance markets from Anna Sweeney’s Dear CEO letter earlier this year, discussed capital management, shared data on the sensitivity of the capital surpluses of UK life insurers to various market movements, and encouraged more consistency in disclosure of sensitivities by insurers and the drivers of changes in their capital positions over time.

    Mr. Rule emphasized that BoE supports the development of international regulatory standards, such as the ICS. As both a home supervisor of UK insurance groups with businesses worldwide and a host supervisor of branches and subsidiaries of insurance groups from many different countries, he also welcomed the monitoring period (starting in 2020) approach of IAIS. During this period, the Internationally Active Insurance Groups will report a reference ICS confidentially to their group-wide supervisors, including for discussion in regulatory colleges. This will give regulatory colleges a common language for measuring group risk and defining capital. He said: "No capital framework is perfect and ICS will be no different. But having agreement on common metrics will be a big step forward. It should further enhance supervisory cooperation and help build trust. Over time, it might reduce the need for multiple overlapping practices in measuring the same risks and help to limit fragmentation of capital requirements."

    PRA will also be alert to insurers seeking to reduce capital requirements through aggressive changes to internal models or over-optimistic business plans, suggested Mr. Rule. This includes using the internal model output data to compare across insurers and monitoring model "drift" indicators, such as the ratio of internal model to standard formula capital requirements. He added that during a roundtable with insurance analysts and investors on disclosure around a year ago, it was found that insurers find Solvency II disclosures more useful than accounting disclosures, at least in the current state of insurance accounting. A consistent set of market sensitivities was near the top of their disclosure wish list. He added that he hopes that insurers and industry groups will work toward an industry standard in this area, perhaps drawing on what they already report.

    He mentioned market risk sensitivities and a Solvency II "P&L" as the two areas where insurers could improve the quality and consistency of disclosures. He used the term "Solvency II P&L" to refer to the drivers of the change in insurers'  Solvency Capital Requirement (SCR) coverage ratio from one reporting date to another. However, Solvency II does not address measurement of changes in capital position over time. There is a reporting gap and insurers are closing it with their own content, leading to a mixed picture across the sector. Again, this is an area where insurers and industry groups could usefully develop some template approaches. He added that it is a concern that we still see evidence of analysts and investors not fully understanding Solvency II balance sheets of insurers. In more stressed market conditions complexity and lack of transparency might lead investors to turn away from regulatory measures of risk and rely on simpler but cruder approaches. However, progress toward an international capital standard should help with this. 

     

    Related Link: Speech 

     

    Keywords: Europe, UK, Insurance, Solvency II, Disclosures, SCR, Insurance Supervision, BoE

    Featured Experts
    Related Articles
    News

    APRA Publishes FAQs on Capital Treatment of Overseas Subsidiaries

    The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to clarify the regulatory capital treatment of investments in the overseas deposit-taking and insurance subsidiaries.

    September 15, 2021 WebPage Regulatory News
    News

    PRA Finalizes Changes to Consolidated Prudential Rules Under CRD5/CRR2

    The Prudential Regulation Authority (PRA) issued the policy statement PS20/21, which contains final rules for the application of existing consolidated prudential requirements to financial holding companies and mixed financial holding companies.

    September 15, 2021 WebPage Regulatory News
    News

    EBA Finalizes Guidance to Assess Breaches of Large Exposure Limits

    The European Banking Authority (EBA) published the final report on the guidelines specifying the criteria to assess the exceptional cases when institutions exceed the large exposure limits and the time and measures needed for institutions to return to compliance.

    September 15, 2021 WebPage Regulatory News
    News

    EBA Revises Guidelines on Stress Tests of Deposit Guarantee Schemes

    The European Banking Authority (EBA) revised the guidelines on stress tests to be conducted by the national deposit guarantee schemes under the Deposit Guarantee Schemes Directive (DGSD).

    September 15, 2021 WebPage Regulatory News
    News

    HKMA Endorses Industry Guidance to Support LIBOR Transition

    The Hong Kong Monetary Authority (HKMA) issued a circular, for all authorized institutions, to confirm its support of an information note that sets out various options available in the loan market for replacing USD LIBOR with the Secured Overnight Financing Rate (SOFR).

    September 14, 2021 WebPage Regulatory News
    News

    OCC Issues Booklet on Supervision of Problem Banks

    The Office of the Comptroller of the Currency (OCC) issued a new "Problem Bank Supervision" booklet of the Comptroller's Handbook. The booklet covers information on timely identification and rehabilitation of problem banks and their advanced supervision, enforcement, and resolution when conditions warrant.

    September 13, 2021 WebPage Regulatory News
    News

    MAS Consults on Capital and Reporting Requirements for Market Risk

    The Monetary Authority of Singapore (MAS) launched a consultation on the standards for market risk capital and the associated reporting requirements for banks incorporated in Singapore.

    September 13, 2021 WebPage Regulatory News
    News

    FDIC Announces Winners of Tech Sprint to Reach Unbanked Consumers

    The tech lab of the Federal Deposit Insurance Corporation (FDIC) selected three winning teams in a tech sprint designed to explore new technologies and techniques to help banks meet the needs of unbanked consumers.

    September 13, 2021 WebPage Regulatory News
    News

    PRA Letter Sets Out Findings on Reliability of Regulatory Reporting

    PRA published a "Dear CEO" letter that sets out findings of a review on the reliability of regulatory reporting and reiterates the supervisory expectations on regulatory reporting.

    September 10, 2021 WebPage Regulatory News
    News

    APRA Connect to Go Live; APRA to Reduce Reliance on CLF

    The Australian Prudential Regulation Authority (APRA) confirmed that its new data collection solution APRA Connect will go live on September 13, 2021.

    September 10, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7472