On 5th November, acting director of insurance supervision at the Prudential Regulation Authority (PRA), Gareth Truran, sent a letter to the Chief Executives of general insurance firms. The letter sets out the PRA’s priorities for the general insurance sector in the coming months. The letter focuses on:

  • Reserving adequacy, governance and controls – particularly in the light of emerging risk developments including in some US casualty lines such as financial and professional lines, medical malpractice and general liability classes. The PRA mentions some anecdotal concerns that commercial pressure from management may be translated in disproportionate challenges to actuarial judgments.
  • Underwriting conditions – some firms appear to be struggling to adapt to changing market conditions, including failing to underwrite profitably and failing to complete remediation work to deal with potential under-pricing of risk.
  • Exposure management – with recent natural catastrophe experiences in mind, firms should ensure that they have assessed the adequacy of their exposure management data and controls as well as risk mitigation strategies. Some perils are changing in nature, frequency and severity and therefore may involve greater loss development than previously assumed.  In respect of man-made catastrophe risks the PRA has already asked firms to develop action plans to address silent cyber exposures.
  • Culture and support for control functions – some firms must do more to improve their corporate culture as well as individual behaviour.  Instances of non-financial misconduct may have implications for the PRA’s view of the fitness and propriety of individuals within the Senior Managers regime. Management and boards have clear responsibilities to ensure that firms are promoting a culture where staff feel able to speak up about poor behaviour.

Gareth Truran ends the letter by saying that the issues above will be priority areas of focus for the PRA in the year ahead. Firms should review the letter and consider whether the issues raised are relevant to them.

View: PRA sends ‘Dear CEO’ letter to general insurance firms setting out current areas of focus