UK: Corporate Insurance Regulatory Update

FSA Policy Documents

Feedback Statement 11/1: Enhancing the auditor's contribution to prudential regulation

10 March 2011

The FSA and the Financial Reporting Council (FRC) have jointly published a Feedback Statement which reports on the main issues arising from the joint Discussion Paper DP10/3 Enhancing the auditor's contribution to prudential regulation. The latter was intended to stimulate debate as to how the FSA can best use audit and auditors to help meet its statutory objectives.

FS11/1 summarises the feedback received in response to the Discussion Paper, and sets out the FSA and FRC's joint response to that feedback. The response includes actions the FSA and FRC have taken since the Discussion Paper and the progress being made in enhancing auditors' contribution to prudential regulation.

The issues covered are:

  • Auditor scepticism and firms' disclosures;
  • Enhancing dialogue and sharing information between the FSA, firms' auditors and audit committees;
  • Scope of reporting by auditors and other; and
  • FSA and FRC powers and whether or not they require expansion or enhancement.

Further, it discusses the next steps and expectations for the future which include the intention to further enhance interaction with external auditors and make use of the guidance and frameworks developed together with the need for close monitoring of the success of the FSA's increased engagement with auditors and audit committees.

A copy of the Feedback Statement can be found at:

Handbook Release 111

10 March 2011

The Release contains updates as to changes to the FSA Handbook which came into force between 7 February 2011 and 6 March 2011.

The updated sections are as follows:

  • Banking: Conduct of Business sourcebook
  • Client Assets
  • Collective Investment Schemes
  • Decision Procedure and Penalties Manual
  • Fees
  • General Provisions
  • Glossary of definitions
  • Interim Prudential sourcebook for Insurers
  • Insurance: Conduct of Business
  • Market Conduct
  • Supervision
  • Senior Management Arrangements, Systems and Controls

A copy of the handbook release can be found at:

Policy Statement 11/5: Auditors' Client Assets Report

25 March 2011 Further to Consultation Paper 10/20, the FSA has published Policy Statement 11/5 which sets out ten new rules that will affect both regulated firms and their auditors. The new rules will come into force on 1 June 2011, although there will be transitional provisions in place until 29 September 2011.

In relation to the preparation of auditors' client asset reports, the rules aim to confirm and clarify the standards required and to increase the quality and consistency of the information provided. Generally, the rules are also intended to improve firms' governance oversight of their auditors and their compliance with client assets rules.

A copy of the Auditor's Client Assets Report can be obtained at:

Handbook Notice 108

25 March 2011

Handbook Notice 108 sets out the changes made to the FSA Handbook made by the FSA Board on 24 March 2011. These changes include amendments to:

  • defer the commencement date of various new controlled functions;
  • update a list of appropriate qualifications in the training and Competence sourcebook;
  • defer until 2015 the full implementation of the Simplified Liquidity Adequacy Standards (ILAS) Regime;
  • revise the Conduct of Business sourcebook following removal of the requirement to annuitise pension savings by age 75; and
  • reflect new rules in relation to auditors' client assets reports and general governance oversight in this area.

A copy of Handbook Notice 108 can be obtained at:

Feedback Statement 11/2: Consumer complaints (emerging risks and mass claims)

28 March 2011

A Feedback Statement has been published outlining the response received in relation to the publication by the FSA, the OFT and the Financial Ombudsman Service of Discussion Paper DP10/1 (Consumer complaints (emerging risks and mass claims)). The Feedback Statement provides details of the responses to DP10/1 and discusses the actions to be taken to improve the regulator's coordination of complaints handling. This forms part of the government's agenda for transforming financial services regulation.

In brief, a new Coordination Committee will replace the Wider Implications Process and will take on the role of identifying emerging risks. The government proposes to introduce a statutory obligation for the Financial Ombudsman Service and the Financial Conduct Authority to put in place a Memorandum of Understanding to govern interactions between the two bodies. This would replace the current voluntary framework that exists between the FSA and the ombudsman. The regulator will also continue to work with trade and consumer bodies in this arena, as well as working alongside the Claims Management Regulator.

A copy of the Feedback Statement can be obtained at:

FSA Communication Documents Speech by Hector Sants at the BBA Conference – Creating the FCA

2 March 2011

Hector Sants, Chief Executive of the FSA, gave a speech on the opportunities created by the government's intention to establish the Financial Conduct Authority (FCA), the proposed new specialist regulatory authority focusing on consumer protection and markets.

In his speech he focused on five topics:

  • The issue of consumer protection – Hector Sants described the key elements of FCA's strategy and explained that it will be based on a proactive and intensive approach.
  • The FCA's powers in relation to consumer protection - New powers will be granted to the FCA, as it will need stronger powers of intervention than the FSA currently has.
  • The regulation of markets and wholesale conduct – Hector Sants stated that the government broadly sees the existing markets regulation framework as performing effectively and therefore, it has proposed relatively few changes in this area. The creation of the FCA, does provide an opportunity to take a fresh look at how wholesale conduct issues are addressed.
  • The importance of Europe - A key success measure of the new UK regulatory landscape will be its impact in the new European regulatory framework as it is important for the UK to effectively influence decision-making at a European level.
  • The FSA's transitional arrangements - Hector Sants explained how the FSA is taking forward the transition to the new regulatory structure. As part of these preparations, a new management structure will be put in place at the FSA from April with the Risk and Supervision business groups being replaced by a Prudential Business Unit and a Conduct Business Unit.

In conclusion, Hector Sants stated that the creation of FCA is intended to fundamentally improve the market place for the benefit of both consumers and firms.

A copy of the speech can be found at:

FSA Corporate Documents Prudential Risk Outlook 2011

17 March 2011

The FSA has published its Prudential Risk Outlook for 2011. Given the increasing split between the regulation of conduct of business and prudential issues, the FSA has this year divided its risk outlook along the same lines, giving rise to two publications (the Prudential Risk Outlook and the Retail Conduct Risk Outlook) which have replaced the former combined Financial Risk Outlook.

Clearly much of the Outlook's content focuses upon the macro-economic environment and also on the banking sector. However, in connection to this, the FSA has noted that there is an element of risk transfer between the banking and insurance sectors which could if not adequately contained threaten wider financial stability. Of particular note in this regard is the significant investment of UK insurers in the debt and capital instruments of banks. The FSA has commented that this investment pattern will be monitored. Large scale lending of gilts from insurers to banks has also been identified as a risk transfer capable of causing contagion, with the FSA noting that insurers should be mindful of their own potential shortterm cash needs and also of their counterparty exposure. In terms of the impact of Solvency II, the FSA has commented that more detailed work is required to understand its impact on insurance company demand for medium and long-term securities.

The Prudential Risk Outlook also identifies issues specifically affecting the UK insurance sector. It notes the challenges facing the life sector, commenting upon the relationship between household saving/income and future new business volumes, whilst adding that from a capital perspective, UK life insurers remain sound even without taking into account the enhanced requirements of Solvency II. The FSA comments that life insurers should of course be alive to long term developments such as changes in savings patterns as well as changes in law and regulation such as Solvency II.

As a general message to insurers, the FSA notes that in light of current uncertainties, firms should have strong strategic planning and measured risk management processes to enable them to deal with change, perform obligations and ensure that policyholders are adequately protected. The Outlook also states that for all insurers, the current low level of investment return necessitates a more prudent approach to underwriting and reserving thereby requiring increased actuarial input and authority. The impact of rising inflation is highlighted as a key factor that insurers should consider when business planning. In general, the FSA comments that the industry needs to continue to plan broadly for Solvency II in advance of details of the directive being finalised.

A copy of the Prudential Risk Outlook can be found at:

Business Plan 2011/2012

22 March 2011 The FSA has published its Business Plan setting out its priorities for 2011/12 together with implications for the FSA's budget.

The Business Plan builds on the recently published Prudential Risk Outlook (as referred to above) and the Retail Conduct Risk Outlook which identified trends in the markets and firms the FSA regulates, and key risks to which the FSA needs to respond.

From a budgetary standpoint, Business Plan notes that despite a 10 per cent increase in the FSA's Annual Funding Requirement (to be borne by larger firms), the set off of enforcement fines received by the FSA means that overall, firms will pay approximately 2 per cent less than for the previous year.

Further to the Government's announced plans for fundamental changes to the structure of financial regulation in the UK, the Business Plan includes a chapter on regulatory reform which details preparatory work to be undertaken ahead of the move to the new regulatory structure of the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA).

Pending the implementation of the new regulatory framework which is not expected to occur until late 2012 at the earliest, the FSA will continue to focus on its statutory objectives of delivering financial stability, market confidence and consumer protection and fighting financial crime. With this in mind, the Business Plan notes that areas of focus for the forthcoming year will include:

  • progressing the government's program of regulatory reform;
  • feeding into and influencing regulatory reform at European and international levels, including in relation to Basel III;
  • enhancing consumer protection by continuing to work towards the implementation of the Retail Distribution Review, in particular in relation to the new commission, training and qualification regimes;
  • continuing to consult on and analyse the impact of proposals in relation to the Mortgage Market Review with a view to publishing a final set of rule changes in early 2012. The changes should strike a balance between enhancing consumer protection and ensuring sustainability of the market;
  • progressing towards implementation of Solvency II; and
  • improving the quality of regulatory systems and supervision.

A copy of the Business Plan can be found at:

Other FSA Publications

FSA Note of legal position on the rights and expectations of with-profits policyholders in mutuals

23 March 2011

The FSA has published a note setting out its legal position on the rights and expectations of with-profits policyholders in mutual insurers. This acts as an update to the legal advice that accompanies the FSA's original October 2009 "Dear CEO" letter to mutual insurers.

The updated note comprises a list of nine points and is expressed to reflect the legal points as briefly summarised in recent Consultation paper, CP11/5: Protecting with-profits policyholders.

A copy of the note can be found at: f

EIOPA Publications EIOPA to establish new stakeholder groups

8 March 2011

EIOPA has announced the members of its two stakeholder groups, the Insurance and Reinsurance Stakeholder Group and the Occupational Pensions Stakeholder Group. The groups each include 30 members and are established to facilitate EIOPA's consultation with stakeholders in Europe on matters of regulation and implementation of technical standards in addition to the guidelines and recommendations that apply to the insurance and occupational pensions industry. They will also be tasked with reporting inconsistencies between local and European regulation or supervisory practices to EIOPA.

The announcement provides details of the composition of the two stakeholder groups and their selection. It also provides further details regarding the roles of the groups and the terms of their respective appointments.

A copy of the press release can be found at:

EIOPA Publishes Results of Fifth Quantitative Impact Study

14 March 2011

EIOPA has published the results of the fifth Quantitative Impact Study (QIS5). QIS5 was executed upon request of the European Commission and assesses the practicability, implications and impact of specified approaches to (re)insurers' valuation of assets and liabilities as well as capital setting under Solvency II. The key message from QIS5 is that sound capital requirements and the quality of capital are the fundamental elements of a prudent framework.

Almost 70% of all insurance and reinsurance companies under the scope of the Solvency II directive participated in QIS5, an increase from the 33% who participated in the fourth Quantitative Impact Study (QIS4). Further, 167 insurance and reinsurance groups participated, a significant increase from the 111 participants in QIS4.

The results of QIS5, including the levels of excess capital held by participants, demonstrate that the European insurance and reinsurance sector's financial position assessed against the Solvency Capital Requirements of the Solvency II directive remains sound despite the challenging market conditions created by the impact of the global financial crisis.

In addition to its role in assessing capital levels, QIS5 was also intended to encourage insurance companies and supervisors to continue preparations for the introduction of Solvency II. QIS5 has enabled EIOPA to identify areas where further guidance is required and has revealed important areas in need of greater attention such as governance, risk management and reporting requirements.

In terms of implementing Solvency II, EIOPA notes that whilst transitional measures are needed to move insurers from Solvency I to Solvency II, these measures must strike a balance in terms of their scope and duration.

A copy of the report and annexes can be found at:

EIOPA Letter to the European Commission: EIOPA QIS5 Report

14 March 2011

EIOPA has published a letter from Gabriel Bernardino, EIOPA's Chairman, to Jonathan Faull, Director General for Internal Market and Services at the European Commission confirming that EIOPA has published its report on QIS5. In doing so, the Chairman states that EIOPA has successfully carried out a comprehensive assessment on the functioning of the Solvency II regulatory framework and its implications for the industry.

The letter states that QIS5 exceeded participation target set in the Commission's letter of 5 July 2010. It confirms that QIS5 was the last fully comprehensive test to take place before the implementation of Solvency II and goes on to explain the outcomes of the study.

A copy of the letter can be found at:

EIOPA launches Europe-wide insurance stress test

23 March 2011

EIOPA has launched the second Europe-wide stress test for the insurance sector on 23 March 2011. It is designed to test whether the insurance sector in the European Union will be able to meet the minimum capital requirement even after applying well defined stress scenarios. It will be carried out between now and the end of May based on 2010 financial results. EIOPA expects to publish the aggregated results in July 2011. The test will include a minimum of 50% of insurance companies per country measured by gross premium income. The Swiss Financial Market Authority will join the test as well as EU and EEA states.

The stress test will assess the strength of individual institutions and evaluate the stability of the insurance sector. The test intends to replicate macroeconomic scenarios and aims to identify and quantify the impact of three different stress scenarios: baseline, adverse and inflation scenario.

A copy of the press release, the Stress Test Framework, the Stress Test Spreadsheet and the Stress Test Curves Ultimo can be found at:


Chinese Insurance Regulatory Commission announces Pilot Insurance Exchange Project in Shanghai

13 March 2011

Shanghai will launch a national insurance exchange. This announcement was made by Wu Dingfu, CIRC Chairman, at an assembly of the National Peoples' Congress. State media reports claim the exchange will trade in liability insurance, reinsurance, property and group life products. Accordingly, state media reports have said that foreign players would be allowed to participate.

For now, this announcement remains just that - an announcement. No concrete details, such as a timeline or the types of products to be offered through the exchange, accompanied it. Yet, the announcement was made at a meeting of China's highest organ of State, and can be construed as a serious statement of intent. Amidst all this, one major question to ask is: Where will the exchange be housed? Will its products be listed on the Shanghai Stock Exchange, or will it have its own home, just like the Futures Exchange or the Metals Exchange?

Observers have said that China is not ready for an insurance exchange. The Chinese reinsurance market is not fully developed, and it lacks the necessary regulations to govern the proposed exchange's structure, products and procedures. It may well be that China's bold announcement has come too early, and that China has not yet appreciated the complexity of such an exchange.

A copy of the related news item can be found at:

EU watchdog: no big Japan hit to Europe's insurers

17 March 2011

An article published by Reuters states that the European Union's insurance watchdog EIOPA sees no major impact from the earthquake crisis in Japan on Europe's insurers.

Carlos Montalvo, the executive director of EIOPA, told a committee of the European Parliament in a statement monitored over the Internet that from a European viewpoint, the impact is not severe, it is under control and there will be no problem for European insurers or for European insurance solvency.

The article can be found at:

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.