UK: The Future Regulation of Insurance:The Tiner Report

Last Updated: 16 June 2003
Article by Pollyanna Deane

John Tiner’s report into the regulation of the UK insurance industry "The future regulation of insurance – a progress report" was published on 1 October 2002. Under the new regime operated by the FSA, insurance firms will be regulated in a fundamentally different way from the way they are now.

The Tiner Report is a summary of this new regulation providing firms with guidance as to how they should prepare themselves for the future. The FSA wishes to see improvements in the following:

  • Consumers to be better informed about the products they are buying;
  • Improvements to the calculation of solvency requirements and a more risk-based approach; and
  • Management to take more responsibility and maintain proper systems and controls.

Firms are reminded to keep up-to-date with the regulatory changes they face, including the International Financial Reporting Standards (2005) and EU reviews and solvency margin requirements.

The Report states "it is essential that any insurer that has not yet taken the necessary actions to meet our regulatory requirements reviews its operations and takes any remedial action needed".

From the consumer’s point of view, the FSA are introducing measures to improve disclosure of information to consumers and improve transparency and fairness.

"The PSB will apply more risk-based and acceptable standards to all firms, regardless of the sectors in which they operate". The FSA has a number of separate initiatives in train as well as those being undertaken internationally to establish adequacy of financial resources for insurers. It should be noted that the FSA is not waiting for the European and International initiatives. The new Prudential Sourcebook which the FSA is introducing in 2004 will reflect the current known position which those initiatives have reached and will be subject to their amendments and the FSA intends to enforce the new regime sooner rather than later.

The management of insurance firms is of particular importance for the FSA going forward. Four initiatives in particular are highlighted by the Tiner Report:

  • changes to the role of actuaries in the governance of life insurance companies;
  • changes to the Government’s framework for with profits funds;
  • guidance on the legitimate use of financial engineering techniques; and
  • additional guidance on systems and controls and operational risks.


For the purposes of its review, the FSA is not concentrating on what it sees as "legitimate outwards reinsurance contracts". This means arrangements whereby risk is fully transferred, rather than being shared or transferred for a limited time only, at a price and on terms that are not entirely at arm’s length. The FSA recognises that financial reinsurance is a legitimate way of strengthening a firm’s solvency position and a means of accessing overly prudent economic reserves within the technical provisions of life insurers. The FSA, however, is concerned where its use obscures the underlying financial condition of the firm or is designed to mislead consumers or regulators as to the financial strength of the insurer.

Accounting standards are to be reformed and the EU prudential regime changed before the end of the decade and it is anticipated this will significantly reduce the role of financial engineering. Meanwhile, the FSA believes a clear review on how firms should distinguish the proper and the less legitimate uses of financial engineering is required.

Further, as part of the financial engineering issue but also with a view to its wider concerns as to systems and controls, the FSA emphasises the importance of management being satisfied as to the purpose and effect of any financial engineering measures and the credit taken for regulatory solvency purposes. The FSA expects a firm’s management to ensure that all financial reinsurance is subject to legal review and sign off procedures at an appropriately high level. Directors of insurers will confirm formally that they have complied with the new guidance.

The FSA anticipates an ongoing programme of regulatory guidance to cover a firm’s systems and controls to be put in place after the next year or so. This covers seven areas, high-level control, legal risk, management information, group risk, risk assessment, internal audit and outsourcing.

Finally, the Tiner Report looks at the improvements to be made to the regulatory regime and what firms can expect from the FSA in future.

The FSA is to make significant changes in regulatory reporting to come into effect over the next three years. This will help it better understand the industry’s risks. The regulator will also look at a firm’s risks and controls in the context of the sector in which it operates.

In line with its risk-based approach, the FSA has already carried out or is in the process of carrying out, risk assessments on the largest 200 insurance firms in the UK and the work is on-going to bring the industry in line with the new regime.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

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