Insurance regulator to tackle systemic risks
The new regulator of UK insurance companies will be heavily focused on Solvency II capital requirements and systemic risks in the sector, the authorities have said.
The Bank of England and Financial Services Authority have published a new paper setting out the mandate for the incoming insurance regulator, the Prudential Regulation Authority.
To be headed by current FSA chief executive Hector Sants, the PRA will regulate around 336 UK general insurers and another 300 from elsewhere in Europe, as well as 123 life insurers and 132 London market insurers.
The PRA will also regulate some investment firms such as friendly societies and operate within the Bank of England, focusing on maintaining the “safety and soundness” of companies to protect systemic stability and policyholders.
“Reflecting the uncertain nature of insurers’ liabilities, prudential insurance regulation will be forward-looking and judgement-based. Much of the PRA’s proposed approach will be achieved in practice through the application of Solvency II, the new European framework for insurance supervision,” said Sants.
Systemic risk within the insurance sector – a regulatory concern since the financial crisis – has also become a regulatory focus.
“Insurance companies can in some circumstances pose risk to the stability of the financial system – via a range of channels, including as providers of funds to banks,” said Andrew Bailey, FSA director of UK banks and building societies, who will become the PRA’s deputy chief executive.
“The insurance supervisors will work closely with the Financial Policy Committee, who will assess system-wide risks.”
The PRA will become active by the end of next year, but further detail on its structure and mandate should be published by the Bank and FSA in the interim.