UK: Corporate Insurance Regulatory Update – May 2011

FSA Policy Documents

CP11/7: Quarterly consultation paper No.28

6 April 2011

In this consultation paper the FSA invites comments on various changes to the Handbook including those highlighted below, for which comments should be provided by 6 June 2011. In Chapter 2 the FSA explains its proposed amendments to the Handbook of the Glossary definition of 'Holloway sickness policy'. It intends to replace the reference to the 'Holloway system' with a list of the four characteristics that will need to be met for a policy to be classified as a Holloway sickness policy.

In Chapter 8 the FSA explains the changes it and the Financial Ombudsman Service intend to make to the Dispute Resolution: Complaints (DISP) sourcebook regarding the FSA's new statutory power to make consumer redress schemes. The proposed changes concern:

  • firms' complaint handling requirements- the FSA would expect that if a consumer redress scheme is established, the existing complaints handling rules contained in DISP 1 would not apply and that specific rules created to apply to consumer redress schemes would instead kick in;
  • complaints to the Financial Ombudsman Service;
  • time limits and case fees;
  • Ombudsman awards, directions and dealing with information;
  • compensation;
  • disciplinary measures;
  • the circumstances in which the FSA will impose a public censure or financial penalty for breaching a scheme's rules;
  • how penalty levels will be set following on from PS 10/4 Enforcement Financial Penalties; and
  • the FSA's view that the Regulatory Decisions Committee should be the decision maker.

A copy of the Feedback Statement can be found at:

Handbook Release 112

14 April 2011

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

The updated sections are as follows:

  • Conduct of Business
  • Credit Unions
  • Dispute Resolution Complaints
  • General Provisions
  • Glossary of definitions
  • FEES manual
  • Mortgages and Home Finance: Conduct of Business sourcebook
  • Prudential sourcebook for Banks, Building Societies and Investment Firms
  • Prudential sourcebook for Mortgage and Home Finance Firms, and Insurance Intermediaries
  • Recognised Investment Exchanges and Recognised Clearing Houses
  • Supervision
  • Senior Management Arrangements, Systems and Controls
  • Training and Competence

A copy of Handbook Notice 108 can be obtained at:

Finalised Guidance FG 11/07 Reverse stress-testing surgeries – Frequently Asked Questions (FAQS)

April 2011

The FSA has published Frequently Asked Questions that were raised during their reverse stress-testing surgeries held in 2010 together with responses to the same. The questions cover scope, process, scenarios, time horizon, governance and outputs of reverse stresstesting as well as questions raised by particular types of firms.

A full copy of the FAQS can be found at:

FSA Communication Documents

Speech by Hector Sants at the FSA Solvency II Conference – Solvency II in context

18 April 2011

Hector Sants, Chief Executive of the FSA, gave a keynote speech on Solvency II concerning the following areas:

  • What we learnt about insurance from the crisis – Sants stated that the crisis showed how insurance business models can be improved and that the predictive ability of internal models is limited. He also highlighted ways of improving the management of insurers.
  • Why the UK is implementing Solvency II – Despite the fact that the UK is obliged to implement Solvency II and has limited discretion in how it does this, Sants noted that the FSA will propose practical policies within the European process where possible.
  • What the UK will gain from Solvency II – Sants said the costs of implementation may outweigh the benefits of Solvency II for smaller insurance firms initially. However, in the long term all firms should gain from a better prudential regime for insurers with greater policyholder protection, a harmonised regime in Europe and higher standards in non-EU countries.
  • How the FSA will implement Solvency II – The FSA's approach to implementation will seek to strike a balance between the cost of the implementation, the quality of its results, the need to ensure that implementation can be achieved on time and the need to integrate long term aspects into the future supervisory structure.
  • Europe – Hector Sants spoke of the new European Supervisory Authority, EIOPA, and the fact that the FSA is represented on its inaugural Management Board as well as the Board of Supervisors. He also highlighted the need for ongoing UK input to European initiatives.

A copy of the full speech can be found at:

Speech by Julian Adams at the FSA Solvency II Conference – The FSA's approach to the implementation of Solvency II

18 April 2011

Julian Adams, Director of Insurance at the FSA, addressed the FSA's Solvency II Conference on how the FSA plans to implement Solvency II in view of the anticipated start date of 1 January 2013.

The focus of Adams' speech was the internal model approval process (IMAP). He indicated that although firms in the UK have shown considerable interest in the using full internal models, use of the standard formula process could also of course produce acceptable results.

Adams explained that the FSA has decided to focus its resources available for firms going through the IMAP pre-application process on certain firms: major UK life and non-life firms, firms operating in the Lloyd's market and subsidiaries of major European groups where the FSA take part in a college of supervisors. Adams advised that pre-application had closed and that supervisors would be in contact with individual firms to indicate how much interaction they would have with the FSA. Firms not included in the focus sectors referred to above could expect less interaction with the regulator.

Adams said that irrespective of whether or not a firm has applied for pre-approval, the FSA plans to be able to receive full IMAP applications from 20 March 2012 for a period of two months. He also reminded the conference that two of the three possible outcomes of the IMAP (specifically, partial approval or rejection) do require contingency planning by firms. Adams referred to the role of the standard formula in such contingency planning, with particular reference to, firstly, the need for firms to consider the formula's suitability and whether it properly reflects risks relevant to their business and, secondly, if the standard formula would result in a significantly higher capital requirement than their own formula, how firms would approach meeting such a requirement.

In addition, Adams touched on other aspects of Solvency II such as the significant changes to the reporting regime for all firms and the requirement to have in place an Own Risk and Solvency Assessment process.

A copy of the full speech can be found at:

Dear CEO Letter- Update on Transition to New Regulatory Structure

4 April 2011

The FSA has published a letter to CEOs which reviews the FSA's progress towards the new regulatory structure.

The letter confirms that on 4 April 2011 the FSA created two new internal units: the Prudential Business Unit (PBU) headed by Hector Sants with assistance from Andrew Bailey, who has been seconded from the Bank of England, and the Conduct Business Unit, which will be lead by Margaret Cole until 1 September 2011 when Martin Wheatley will replace her. These units take the place of the Supervision and Risk business units. An organisation plan reflecting this change is attached to the letter.

The letter states that integrated supervision will continue until the FSA has designed and piloted new regulatory processes and trained staff. It also indicates that legislation to enable the transfer of power from the FSA to its successors, the Prudential Regulation Authority and the Financial Conduct Authority, is expected to come into force in 2012.

A full copy of the letter can be found at:


EIOPA Draft Report on Variable Annuities

5 April 2011

In 2010, EIOPA set up a Task Force in order to establish common European regulatory guidelines for insurers selling variable annuities. By nature, variable annuity products each have their own unique features but do involve some element of investment guarantee. In the European market, variable annuities are often sold cross-border by large insurers on the basis of either freedom of establishment or freedom of services. In light of this, EIOPA's predecessor CEIOPS considered that standard EU guidelines for national supervisors would benefit the various local regulators who supervise insurers selling variable annuities. The intention is that the EIOPA guidelines will be adapted by the various local regulators in accordance with the features of the variable annuity product in question.

The draft report sets out the Task Force's recommendations to date and covers matters including technical and actuarial issues, governance matters cross-border aspects, systemic risk and key points, differentiating between the Solvency I and Solvency II frameworks where relevant.

A full copy of the draft report 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.

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