On 31 March 2020, the Prudential Regulation Authority (PRA) published a Dear CEO letter from Sam Woods, Deputy Governor, to the CEOs of UK insurers regarding distribution of profits.
The letter outlines an expectation on insurers to pay close attention to the need to protect policyholders and maintain safety and soundness in order to ensure that insurance companies can “play their part” in supporting the real economy throughout the economic disruption from Covid-19.
The letter affirms the importance of insurers in providing an essential safety net for individuals and businesses, as well in their role as long-term investors in the UK economy. In this time of high uncertainty Same Woods states that it is critical that insurers manage their financial resources prudently in order both to ensure that they are able to meet the commitments to policyholders (consistent with the expectations of the Financial Conduct Authority).
Finally, the letter reminds firms of the PRA’s existing expectation (set out in the supervisory statement Financial management and planning by insurers (SS4/18)) that when deciding on distributions, boards should satisfy themselves that each distribution is prudent and consistent with their risk appetite.