PRA sets out its 2023 priorities for insurance supervision
On 10 January 2023, the PRA sent a Dear CEO letter setting out its 2023 Priorities for Insurers. Insurance supervision: 2023 priorities
The key focus areas include the following:
- Financial Resilience: ensuring that the impact of inflation is fully considered in pricing, reserving, business planning and capital modelling, and that capital adequacy is sufficient during the current challenging economic climate,
- Risk Management: ensuring that companies assess the adequacy of their risk management and control frameworks,
- Implementing Financial Reforms: ensuring that significant progress with the implementation of Solvency UK, the Solvency II replacement for UK firms, initially via consultation with affected firms,
- Reinsurance Risk: ensuring that firms are adequately considering the risk associated with reinsurance including the impact on resilience, counterparty and concentration risk, and
- Operational Resilience: ensuring that firms are improving their ability to assess the impact of operational scenarios, including cyber incidences, outsourcing and third-party management. By now all insurers are expected to have mapped their important business services, set appropriate impact tolerances and be working to be able to demonstrate that they can operate within those tolerances even when relying on third party providers.
- Ease of Exit for Insurers: The PRA will consult during 2023 on a requirement for all firms, including small firms, to prepare proportionate exit plans. This will provide firms with more specific expectations than are currently available, for example in Fundamental Principle 8, as firms will need to be able to show that they have considered how they would exit the market in an orderly way and how they would address any obstacles they might face. It is hoped that this will give firms more clarity on the PRA’s expectations.
Other areas of focus are enhancing risk management capabilities in relation to exposure management of non-natural catastrophe, reviewing firm progress with the PRA expectations of how to assess the financial risk of climate change and a future regulatory framework on embedding Diversity Equity and Inclusion in the financial sector.
The reforms of Solvency II will require detailed consultation and subsequent rulemaking, so changes are unlikely to come into force until at least December 2024. Consultation has already begun on changes to reporting which should simplify the amount of information required, especially for small firms and we expect formal consultations towards the end of 2023 on proposed rules. While changes to the trigger limits have been disclosed, no indication of the level of Minimum Capital Requirements has been given and the implications for firms who will fall below the new limits will need to be discussed.
In addition, the PRA is reducing the number of Risk Categories from 5 to 4. The regulatory approach to smaller firms falling in the old categories 4 and 5 did not differ so this should not make much difference in practice.
Senior Actuary
Tel: 01372 847582
Email: kathryn.moore@sda-llp.co.uk
Read Kathryn’s biography