Dealing with a market turning event in the general insurance sector

Policy Statement 16/17 | Consultation Paper 32/16

Published on 5 July 2017

Dealing with a market turning event in the general insurance sector – PS16/17

Overview

This Prudential Regulation Authority (PRA) policy statement (PS) provides feedback to responses, and the final Supervisory Statement (SS) 5/17, ‘Dealing with a market turning event in the general insurance sector’ (see Appendix), for Consultation Paper (CP) 32/16 ‘Dealing with a market turning event in the general insurance sector’.

This PS also provides responses, in the context of the CP proposals and policy on a market turning event (MTE), to recommendations made to the PRA set out in an industry White Paper published in January 2017. This follows an industry-sponsored dry run exercise simulating a $200 billion catastrophic loss event that took place in November 2016 (see Chapter 3).

This PS is relevant to all PRA-regulated general insurance firms in scope of the Solvency II Directive, and to the Society of Lloyd’s (Lloyd’s) and managing agents (‘Solvency II firms’).

Feedback on consultation responses

The PRA received seven responses to CP32/16. All respondents were supportive of the intentions behind the proposals. Following consideration of respondents’ comments to the CP and the recommendations following the industry-sponsored dry-run exercise, the PRA has made several changes to the SS consulted on. These changes and feedback to responses are set out in Chapter 2.

Policy Statement 16/17 Opens in a new window

Appendix

Supervisory Statement 5/17

Published on 21 September 2016

Dealing with a market turning event in the general insurance sector - CP32/16

In this consultation paper (CP), the Prudential Regulation Authority (PRA) sets out a draft supervisory statement on its expectations of general insurance firms regulated by the PRA, in relation to significant general insurance loss events which might affect firms’ solvency and future business plans.

This CP is relevant to all PRA-regulated general insurance firms in scope of the Solvency II Directive (the Directive), and to the Society of Lloyd’s and managing agents (‘Solvency II firms’). The SS sets out the PRA’s expectations of how such firms, particularly those operating in the global specialty insurance and reinsurance market known as the London market, might plan for and respond to such an event.

At the time of writing, the PRA also issued Supervisory Statement 12/16 ‘Solvency II: Changes to internal models used by UK insurance firms’ – see Related Links. Firms with internal models may find it helpful to refer to the SS to consider the PRA’s expectations on firms applying for approval for a major change.

Summary of proposals

The draft SS sets out the PRA’s expectations of firms in planning for and in the event of a Market Turning Event (‘MTE’). It is particularly focused on those firms that breach or may breach their SCR or MCR within the three months following an MTE.

The draft SS also outlines some areas that the PRA would expect firms to consider in the medium and long-term after an event, to assess the lessons which might be learned from the experience and to assess the potential consequences for their business model and risk profile.

Responses and next steps

Update 22 December 2016: The consultation period was extended to Monday 9 January 2017 and is now closed. A technical issue was identified which affected respondents' ability to email submissions. This was resolved on Monday 19 December.

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