The Bank of England and the Financial Services Authority have published a joint paper setting out the current thinking on how the future Prudential Regulation Authority (PRA) will approach the supervision of insurers.
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 PRA will be responsible for the prudential supervision of over 2000 firms, of which around half will be insurers. It will supervise companies specialising in life insurance, general insurance and wholesale insurance (including reinsurance), and companies that undertake a composite of these activities. On current data, 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 132 insurers which are involved in the London Market.
Hector Sants says, “"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."
The PRA's regulation of insurers will seek to promote the safety and soundness of insurers to deliver two aims: to secure 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.