Keeping track of insurance legal and regulatory developments in 2022

PRA’s Dear CEO letter

Resilience, both financial and operational, are top of the PRA’s agenda for 2022.  In light of the on-going economic impact of COVID-19, the PRA expects firms to closely monitor credit risk within their portfolios and the impact on provisioning and to monitor the risks arising from economic and social inflation, in particular the impact on the cost of claims.  The PRA will be monitoring the impact of the new pricing rules on the business models and underwriting practices of retail general insurers and expects insurers to continue to underwrite on a sustainable basis.  The PRA will launch a new Insurance Stress Test in mid-May to assess the financial resilience of the sector.  Insurers are expected to fully engage in the exercise and provide comprehensive responses to information requests.

The new operational resilience requirements will come into force at the end of March and the PRA will be reviewing firms’ programmes and implementation of the new rules.  The PRA highlights the increasing risk of cyber threats and the expectation that firms will develop security controls and capabilities to managing this risk (as required in Supervisory Statement 1/21).  The new rules on outsourcing and third-party management come into force at the end of March and the PRA expects firms to ensure that, in complying with the rules, services provided by third parties also remain within impact tolerances.

Minimising the future risks from climate change remains a key priority for the PRA.  It acknowledges the good progress made by some firms but states that more work is needed by many firms to meet the PRA’s expectations and that action must be taken immediately.

The ongoing work on the review of the Solvency II regime in collaboration with HM Treasury,  remains a key area of focus this year.   In the early part of this year the PRA will be augmenting the data collected last year from insurers through detailed technical engagement on policy measures.  This will lead to a formal consultation on proposals later in the year.   The PRA is also working on the development of a resolution regime for insurers and looking at its approach to authorising insurance linked securities vehicles and wholesale insurance firms.

Other areas of priority in 2022 are to continue to deal with third country branch applications and to encourage diversity within firms.

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Authored by Kirsten Barber.