PRA on Dealing with Market Turning Event in General Insurance Sector
The PRA published policy statement PS16/17 and supervisory statement SS5/17 on dealing with a market turning event in the general insurance sector. PS16/17 provides feedback to responses for consultation paper CP32/16 titled “Dealing with a market turning event in the general insurance sector.” SS5/17 sets out PRA’s expectations of how firms might prepare for, and respond to, a major general insurance loss event, which might affect their solvency and future business plans, and explains how the PRA expects firms to interact with it on these issues.
The statements are relevant to all PRA-regulated general insurance firms in scope of the Solvency II Directive and to the Society of Lloyd’s and managing agents (Solvency II firms). SS5/17 is aimed at the firms operating in the global specialty insurance and reinsurance market, known as the London Market, whose business models are exposed to low-probability, high-severity catastrophe risks. The SS5/17 should be read in conjunction with PRA rules in the Solvency II sector of the PRA Rulebook and the PRA insurance approach document. The PRA had received seven responses to CP32/16 and amended the draft supervisory statement based on further analyses and the responses received. The changes and feedback to responses are set out in Chapter 2 of PS16/17. PS16/17 also provides responses, in the context of the proposals and policy on a market turning event, to recommendations made to the PRA, as set out in an industry whitepaper that was published in January 2017. This follows an industry-sponsored dry run exercise simulating a USD 200 billion catastrophic loss event that took place in November 2016. No changes have been made to the SS5/17 regarding a breach of minimum capital requirement (MCR) or solvency capital requirement (SCR) and the changes include:
Further consideration of the characteristics of a market turning event and its impact on firms’ model change policies
Addressing concerns over the speed of a regulatory response following a market turning event (including the PRA’s interaction with Lloyd’s and other regulators)
Amendments made to the example loss return template
Clarification of the application of proportionality and firms’ use of existing documentation such as Own Risk & Solvency Assessments (ORSAs)
Amendments to more explicitly draw out the importance of liquidity management following a market turning event
Related Links
Keywords: Europe, United Kingdom, PRA, Insurance, Solvency II, Market Turning Event
Featured Experts
Paul McCarney
Insurance product strategist; insurance domain expert; extensive experience developing risk assessment frameworks for insurers
Brian Robinson
Actuary; risk management specialist; corporate and capital modelling expert
Previous Article
Central Bank of Brazil Proposes Resolution on Exposure LimitsRelated Articles
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.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
