
FSA shakes up capital rules for UK insurers
The FSA is proposing a new, risk-based minimum regulatory capital requirement (ECR), driven by ratio formulae for assets, premiums and technical provisions. In addition, the FSA wants to initiate a regime under which it will review firms’ assessments of their own capital needs.
The FSA is bringing the UK in line with the rest of Europe, where some continental countries have very prudent provisioning requirements, said Hitesh Patel, a London-based partner in KPMG’s financial services practice. “The bottom line is, some companies will face increases of capital requirements, some of them quite substantially,” Patel told RiskNews.
The FSA acknowledged the changes could require such firms to respond by either raising new capital or by reducing the risks they face or underwrite.
But consultancy firm Mercer Oliver Wyman said the proposals on stricter capital requirements will not change insurers’ behaviour, unless the regulator provides incentives to improve their internal risk management processes. London-based head of Mercer Oliver Wyman’s insurance practice, Anthony Stevens, told RiskNews the FSA must look at how it can give incentives for internal models in the same way that it offers regulatory capital waivers in the life insurance sector.
Stevens was also critical of the "simplistic formula-based approach" of the ECR. “If you look at all the major non-life insolvencies, almost all are driven by under-pricing and under-reserving,” he said. “A formula driven by balance-sheet ratios doesn’t address that at all.”
However, one industry expert said he believed Mercer’s concerns were overstated. “The incentives for risk management are already there for companies who have made huge losses in terms of correctly pricing products and monitoring risk,” he said.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Regulation
SEC criticised for belt-and-braces ban on volume-based pricing
Legal experts question need for rules to prevent firms disguising agency trades as proprietary
SEC expected to protect CRT in conflicts of interest rule
Decision could come as early as today; high hopes for credit risk transfer exemption
FRTB managers face hard facts about risk factors
There are ways to reduce the capital charges caused by NMRFs, but they come at a price
SEC official defends delayed dealer registration rule
Regulator says market should be treated like equities, but PTFs warn it will harm market liquidity
New UK clearing rules: same as the old rules?
Clearing experts doubt UK regulation can diverge significantly from Emir and global standards
SEC to delay US Treasury clearing mandate, dealer rule
A final vote on proposed US Treasury market reforms is now expected in early 2024
BoE warns against use of stablecoins in banking
Tokenised payment systems pose compliance and systemic risks, regulator says
Industry unsure of SEC’s new short-selling transparency rule
Requirement aims to provide sufficient transparency while protecting traders from a GameStop-style backlash