David Rule of BoE Discusses Issues in Insurance Supervision
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
Brian Robinson
Actuary; risk management specialist; corporate and capital modelling expert
Previous Article
EC Vice President Speaks About Solvency II and Capital Markets UnionRelated Articles
OSFI Issues Phase2 Consultation on Climate Scenario Exercise for Banks
The Office of the Superintendent of Financial Institutions (OSFI) recently announced a consultation on the second phase of the Standardized Climate Scenario Exercise (SCSE) for banks and other financial institutions it regulates in Canada.
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.