Julian Adams gave a speech at the Insurance Institute of London last week where he commenced with a rather familiar lament about how, at the outset of the FSA/BoE splice, "...we knew that there was some concern in the insurance industry that the Bank didn’t understand insurance". After collecting the award for 'understatement of the year', he then waxed lyrical about the five lessons learned by the BoE from the financial crisis, and how these are being applied currently to insurance supervision in the UK;
- "...the need for a prudential supervisor to focus on the risks that might materialise for firms in the future"
- "...not enough to focus on static point-in-time assessments of firms’ solvency positions"
- "...for some issues it is not enough to just look at the risks within individual firms and address them at an individual firm level. Instead, we need to supplement this analysis with work across the system as a whole"
- "...the need for clarity about the objectives of prudential regulation"
- "...the need to have multiple reference points when assessing firms’ capital positions. Simple crude measures are not sufficient in themselves, but neither are complex models"
|One brush - two industries?|
Alongside this speech, Chris Finney has published a scathing article on the PRA's approach to EWIs, focusing on its legality at both national and EU level, its unwillingness to consult on the matter, and ultimately how the PRA's experiences with banks a few years back (well. the FSA/BoE, but let's not split hairs) have seemingly allowed the insurance industry to be smeared with the same tarry brush.
With the PRA seemingly using their "lessons learned" rationale alongside the equally informal "interest" of the IAIS and EIOPA in non-modelled capital backstops, is that really enough to fend off (current) UK statute and (pending) EU law if the industry fights back?