Patrick Connolly Manager, Retail General Insurance Team 1. The PRA Approach to Supervision for...

Patrick ConnollyManager, Retail General Insurance Team

1. The PRA Approach to Supervision for Smaller Insurers

Topics:

1.1 The Regulatory Framework

1.2 Firm Categorisation

1.3 The Supervisory Approach

1.4 Regulatory Co-ordination

1.5 Communication

The PRA Approach to Supervision


Source: Bank of England Quarterly Bulletin, Q4 2012


Key: FPC Financial Policy Committee

FCA Financial Conduct Authority

http://www.bankofengland.co.uk/publications/Pages/quarterlybulletin/2013/a13.aspx


The PRA’s statutory objectives:-

• General objective:

“promoting the safety and soundness of PRA-authorised firms”

• Insurance objective:

“contributing to the securing of an appropriate degree of protection for those who are or may become policyholders”



5

33

49

84

186

101

16

Cat 1

Cat 2

Cat 3

Cat 4

Cat 5 Live

Cat 5 Run-off

Cat 5 P&I Clubs

Cat 5 Firms All firms



Category 4

Insurers whose size …….. “very little capacity individually to cause disruption to the UK financial system. ……………”.

Category 5

Insurers whose size, interconnectedness, complexity and business type give them almost no capacity individually to cause disruption to the UK financial system by failing or by carrying on their business in an unsafe manner, but where difficulties across a whole sector or subsector may have the potential to generate some disruption. They have no capacity to cause disruption to the interests of a substantial number of policyholders.


• Category 4 firms: • Annual supervisory assessment visit • Desk-based reviews of returns and Management Information• Issue-driven meetings and reactive work • Peer group and trend analysis

• Category 5 firms: • Firm Enquiries Function for routine queries• Broadly reactive supervision in response to crystallised risks • Some proactive analysis and assessment at solo and peer-group level



Supervisory Models


Firm Enquiries Function

• Queries relating to:– Returns– Authorisation process– The Handbook– First reporting of crystallised risks

Supervision Team

• Authorisations– Changes in Control– Approved persons (red channel)– Part VII transfers

• Capital issues• Strategic issues• FCA interaction



“Forward-looking and judgement-based supervision…”

What does this mean in practice?



April Capital

July Capital

October Capital

January Capital

Cat 5Cycle

PSM = Periodic Summary Meeting, sets our supervisory

strategy


PSM Peer Group 4

Annual Returns Submitted

Review Annual Returns

PSM Peer Group 1

PSM Peer Group 2

PSM Peer Group 3


• Minimum requirements that firms must meet at all times in order to be permitted to carry out regulated activities

• Firms will need to meet both PRA-specific and FCA-specific threshold conditions

• PRA-specific threshold conditions:– Legal status– Location of offices– Prudent conduct– Suitability– Effective supervision

• The PRA will assess firms against the threshold conditions on a continuous basis


Threshold Conditions


• Effective delivery of our approach requires co-ordination with the FCA

– Focussed at firm level– MoU and colleges to ensure statutory duty to co-ordinate is effective

• Firm-specific supervision alone is not sufficient to deliver financial stability. Must be complemented by an effective macroprudential regime

– Two-way flow of information and exchange of views between the PRA and the FPC

– PRA responsible for implementing relevant FPC recommendations on a ‘comply or explain’ basis

– FPC has powers to direct the PRA


1.5 Communication

Our main objectives are to:

• Communicate the PRA objectives and expectations to industry clearly.

• Understand market trends in order to inform our forward-looking approach and communicate supervisory priorities for the sector.

• Raise awareness of the information and support available to smaller insurers.


Patrick ConnollyManager, Retail General Insurance Team

1. The PRA Approach to Supervision for Smaller Insurers


Topics:

1.1 The Regulatory Framework1.2 Firm Categorisation1.3 The Supervisory Approach1.4 Regulatory Co-ordination1.5 Communication



Source: Bank of England Quarterly Bulletin, Q4 2012Key: FPC Financial Policy Committee FCA Financial Conduct Authority

http://www.bankofengland.co.uk/publications/Pages/quarterlybulletin/2013/a13.aspx



The PRA’s statutory objectives:-

• General objective: “promoting the safety and soundness of PRA-authorised firms”

• Insurance objective:“contributing to the securing of an appropriate degree of protection for those who are or may become policyholders”


5

33

49

84

186

101

16

Cat 1

Cat 2

Cat 3

Cat 4

Cat 5 Live

Cat 5 Run-off

Cat 5 P&I Clubs

Cat 5 Firms All firms




Category 4

Insurers whose size …….. “very little capacity individually to cause disruption to the UK financial system. ……………”.

Category 5

Insurers whose size, interconnectedness, complexity and business type give them almost no capacity individually to cause disruption to the UK financial system by failing or by carrying on their business in an unsafe manner, but where difficulties across a whole sector or subsector may have the potential to generate some disruption. They have no capacity to cause disruption to the interests of a substantial number of policyholders.


• Category 4 firms: • Annual supervisory assessment visit • Desk-based reviews of returns and Management Information• Issue-driven meetings and reactive work • Peer group and trend analysis

• Category 5 firms: • Firm Enquiries Function for routine queries• Broadly reactive supervision in response to crystallised risks • Some proactive analysis and assessment at solo and peer-group level


Supervisory Models



Firm Enquiries Function

• Queries relating to:– Returns– Authorisation process– The Handbook– First reporting of crystallised risks

Supervision Team

• Authorisations– Changes in Control– Approved persons (red channel)– Part VII transfers

• Capital issues• Strategic issues• FCA interaction



“Forward-looking and judgement-based supervision…”

What does this mean in practice?



April Capital

July Capital

October Capital

January Capital

Cat 5Cycle

PSM = Periodic Summary Meeting, sets our supervisory strategy

PSM Peer Group 4

Annual Returns Submitted

Review Annual Returns

PSM Peer Group 1

PSM Peer Group 2

PSM Peer Group 3



• Minimum requirements that firms must meet at all times in order to be permitted to carry out regulated activities

• Firms will need to meet both PRA-specific and FCA-specific threshold conditions

• PRA-specific threshold conditions:– Legal status– Location of offices– Prudent conduct– Suitability– Effective supervision

• The PRA will assess firms against the threshold conditions on a continuous basis

Threshold Conditions



• Effective delivery of our approach requires co-ordination with the FCA– Focussed at firm level– MoU and colleges to ensure statutory duty to co-ordinate is effective

• Firm-specific supervision alone is not sufficient to deliver financial stability. Must be complemented by an effective macroprudential regime

– Two-way flow of information and exchange of views between the PRA and the FPC– PRA responsible for implementing relevant FPC recommendations on a ‘comply or explain’ basis– FPC has powers to direct the PRA


1.5 Communication

Our main objectives are to:

• Communicate the PRA objectives and expectations to industry clearly.

• Understand market trends in order to inform our forward-looking approach and communicate supervisory priorities for the sector.

• Raise awareness of the information and support available to smaller insurers.

Patrick Connolly Manager, Retail General Insurance Team 1. The PRA Approach to Supervision for...

Documents

Transcript of Patrick Connolly Manager, Retail General Insurance Team 1. The PRA Approach to Supervision for...