BaFin Solvency II Conference The Current UK Perspective on the Insurance Industry including Solvency II Implementation

Transcription

1 BaFin Solvency II Conference The Current UK Perspective on the Insurance Industry including Solvency II Implementation Subtitle for event (Arial 28pt) Giles Fairhead Head of Retail Life, Date (Arial 16pt) Life Insurance Directorate, PRA 13 November 2014

2 UK regulatory landscape 2

3 The PRA s objectives General objective: promoting the safety and soundness of firms, primarily by seeking to reduce the adverse effects they can have on the stability of the UK financial system. Insurance objective: to contribute to the securing of an appropriate degree of protection for those who are or may become policyholders. Secondary objective: to facilitate effective competition in relevant markets. The competition objective is secondary as the PRA should not take steps to facilitate competition to an extent that would be inappropriate for the safety and soundness of the firms it regulates 3

4 The PRA as a regulator An effective regulatory approach combines firm-specific supervision alongside work to protect and enhance the resilience of the overall financial system. The PRA carries this out in conjunction with other parts of the Bank of England. The PRA s approach to insurance supervision consists of three main components 1. Judgement -based 2. Forward looking 3. Risk based 4

5 Impact of the 2014 UK Budget announcement on the annuities market Biggest risk to the PRA objectives will be: The continued viability of some existing business models; Increased competition may reduce margins and profitability across the industry; and Product innovation may result in firms becoming exposed to unexpected and poorly understood risks. 5

6 Development of a new regime is demanding Finding balance between policy stability and providing information to firms Successful Solvency II implementation is a priority for the PRA PRA consultation papers and supervisory statements CP16/14: Transposition of Solvency II: Part 3 CP23/14: Solvency II approvals Upcoming CP on pensions risk Balance sheet, technical provisions and own funds review Technical actuarial events, website updates and Directors letters Solvency II Conference: countdown to implementation As Solvency II transposition and implementation approaches the PRA will publish policy and make further information available to all firms via the website and supervisors. 6

7 Similarities and differences between current and future regimes Currently operating in advanced risk sensitive regime with many firms using complex modelling techniques. The existing UK regime has supported this But internal models are far more complex, expert judgment is subjective and PRA has to make significant decisions in a short space of time UK regime has withstood shocks of last decade and PRA understands capital requirements under old regime But Solvency II is different to current practice in a number of respects and the PRA is using data collection to calibrate expectations of capital The existing regime expects regular reporting returns from the industry But Solvency II will give the PRA a far greater quantity of data than ever before to supervise firms Solvency II is changing the operations and procedures of insurers and the PRA 7

8 Implementation of the EIOPA preparatory guidelines PRA supervisory statement 4/13 provided a consistent and convergent framework for firms Solvency II preparations Forward Looking Assessment of Own Risks Concise, focused on key issues Considers business model and strategy Includes stress and scenario testing Used by the Board Internal Models Long running internal model approval process with ICAS+ to help transition Compressed review timetable Documentation and validation, more focus on assumptions and justifications System of Governance Similar to current Pillar II regime Need more evidence of prudent person principle and outsourcing arrangements Crucial role of Board and support from actuarial function Submission of Information Previously insufficient emphasis on asset composition Increase in frequency and detail, significant effort to be ready for reporting in summer 2015 Preparatory guidelines are an important step towards Solvency II implementation 8

9 Summary and Questions There have been significant changes to the UK regulatory regime in recent years; and The UK life industry is also facing major challenges following Government reforms to at-retirement market. Despite this both the PRA and industry are focusing on a successful implementation of Solvency II. 9