The Prudential Regulation Authority (PRA) has revised its statement on the approach it will take to insurance supervision. The approach document summarises the aims and objectives of the PRA in relation to insurers and is updated to reflect new developments or priorities.
The revised approach document highlights the addition of the new secondary objective, to promote effective competition in the markets for services provided by firms supervised by the PRA. The competition objective must, as far as possible, facilitate competition in the insurance market. This objective however, only applies where the PRA is advancing its primary objectives (ensuring the safety and soundness of firms it supervises and protecting policyholders). In relation to the insurance objective the approach document states that the PRA’s focus is to ensure that policyholders have an appropriate degree of continuity of cover for the risks insured against.
The PRA has replaced the Principles for Businesses with eight ‘Fundamental Rules’ which have been designed to align high-level behaviours with the PRA’s objectives. The Rules are discussed in more detail in the article below.
The revised approach includes new text on the use of powers to address serious failings in the culture of firms. The PRA expects firms to have a culture that supports their prudent management. Under its statutory powers the PRA may require a firm to do or cease to do a particular thing. One of the grounds for exercising this power is to advance one of the PRA objectives enabling the regulator to take action should concerns about the culture of a firm pose a risk to one of their objectives. The power has the flexibility to mean that serious cultural concerns in a firm may be addressed. For example, the power might be used to require that an individual is nominated within a firm to have responsibility for recommendations specified by the PRA or requiring the retention of an independent individual to ensure compliance with PRA recommendations. The PRA may also use its own-initiative powers to vary permissions in certain situations or it can agree with a firm to voluntarily alter its permission.
In addition to the above, the new version of the approach document includes additional text to reflect the way in which insurers will be categorised and clarify the approach to financial resources, updated text on the PRA approach to international regulation, and an up-to-date organisational structure.
View Revised PRA approach to insurance supervision, 19 June 2014