Published on 17 May 2018
Financial management and planning by insurers – PS10/18
Overview
This Prudential Regulation Authority (PRA) policy statement (PS) provides feedback to responses to Consultation Paper 23/17 ‘Financial management and planning by insurers’ (CP23/17), and the final Supervisory Statement (SS) 4/18 ‘Financial management and planning by insurers’ (Appendix).
This PS is relevant to all UK insurance firms and groups in scope of the Solvency II Directive, and to the Society of Lloyd’s and managing agents (collectively referred to as ‘insurers’).
Summary of responses
The PRA received seven responses to CP23/17. These responses generally welcomed the clarity the PRA expressed regarding the importance of a robust risk appetite framework in the management and monitoring of key business activities, and agreed that much of the proposals set out in the proposed SS were in line with the current financial planning and management of firms, and would reinforce current good practices. They also supported the general principle that the PRA should issue an SS on financial management and planning by insurers.
Implementation
SS4/18 will take effect on the day of publication (Thursday 17 May 2018).
Policy Statement 10/18 Appendix
Supervisory Statement 4/18 ‘Financial management and planning by insurers’
Published on 9 November 2017
Financial management and planning by insurers – CP23/17
Overview
In this consultation paper (CP), the Prudential Regulation Authority (PRA) seeks views on a draft supervisory statement (SS) on effective financial management and planning by insurance firms and groups.
This CP is relevant to all UK insurance firms, and groups, in scope of the Solvency II Directive, and to the Society of Lloyd’s and managing agents (‘insurers’).
The purpose of these proposals is to set out how the application of effective risk management and governance may be linked together with the need for insurers to maintain a sound financial condition going forward, by issuing an SS setting out the PRA’s expectations on financial management and planning by insurers.
The PRA considers that effective financial management and planning is especially important for those insurers with a high risk appetite, and for those insurers with capital levels that may fluctuate significantly.
As explained in ‘The PRA’s approach to insurance supervision’, the PRA expects to see proper board scrutiny and challenge at an insurer of the ongoing financial management of the insurer, including the sustainability of its capital management and dividend policies, in the context of its risk appetite.
The draft SS is drafted in the context of the PRA rules in the Conditions Governing Business and Investments Parts of the PRA Rulebook, and Articles 258 – 267 of the Commission Delegated Regulation (EU) 2015/35. It would sit alongside ‘The PRA’s approach to insurance supervision’; SS41/15 ‘Solvency II: applying EIOPA Set 2, System of Governance and ORSA Guidelines’; SS5/16 ‘Corporate Governance: Board responsibilities’; SS19/16 ‘Solvency II: ORSA’; and SS5/17 ‘Dealing with a market turning event in the general insurance sector’.
This draft SS is intended to complement existing policy material, rather than to set any new expectations on governance or risk management for insurers. The PRA considers that most insurers will already be meeting the expectations set out in this draft SS.
Summary of proposals
The draft SS in the Appendix to this CP sets out the PRA’s expectations for financial management and planning by insurers. These include the framework for the development and maintenance of a risk appetite statement by an insurer, the application of this risk appetite to an insurer’s business and financial plans, and the assessment of the suitability and sustainability of capital distribution plans in the context of this risk appetite.
Responses and next steps
This consultation closed on Friday 9 February 2018. The PRA invites feedback on the proposals set out in this consultation. Please address any comments or enquiries to CP23_17@bankofengland.co.uk.