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The Actuary The magazine of the Institute & Faculty of Actuaries
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Life Board update

Capital requirements for life insurers and ‘realistic reporting’

At the end of August the FSA published CP195, ‘Enhanced capital requirements and individual capital assessments for life insurers. The FSA’s own summary of the consultation paper explained that it proposed ‘new rules to determine how much capital should be held by life insurers, which would link the capital requirements for with-profits insurers more directly to how they smoothed the payments they make to their policyholders’. The new rules would also ‘give the regulator more scope to set higher capital requirements than the minimum levels to reflect any additional risks in the business. In addition the new regime would require all life insurers to undertake their own self-assessments of how much capital they needed to hold, including through undertaking stress and scenario tests’. The FSA set a deadline of 30 November 2003 for responses.

The Life Supervision Committee has taken the lead in preparing a response on behalf of the profession. The general tone of the response is supportive of CP195’s approach, and in particular the ‘twin-peak proposals’, and recognises that they should result in a significant improvement in consumer protection. At the same time, the response flags up a number of reservations concerning the detail of the proposals.

The response will follow the usual processes of internal clearance before being submitted to the FSA. Because of the importance of the proposals in CP195, however, the board wants to take the opportunity of meetings planned in November to invite members of the profession to make their input to consideration of the consultation paper. The draft response will be available on the profession’s website in the week beginning 10 November 2003, and members who wish to comment can do so direct at the meetings on 17 and 24 November, or by email to Maria Singleton at Staple Inn (marias@actuaries.org.uk).

Faculty sessional meeting – Edinburgh

Earlier this year, the Life Board asked the With-Profits Working Party (chaired by David Hare) to prepare a paper on realistic reporting, particularly in the light of recent statements from the FSA. The paper, ‘The realistic reporting of with-profits business’, is being made available to members for downloading from the profession’s website from the start of November. It is a timely summary of the key issues involved and presents some interesting examples and results of realistic reserve calculations.

A discussion on the topic, preceded by a brief presentation from the authors of the paper, will take place at the Merchant Company Hall in Edinburgh, between 2.30 and 4.30pm on 17 November. This will also provide the chance for comments to be offered on the profession’s draft response to CP195 and Peter Joshi will be present to consider these on behalf of the Life Supervision Committee.

It will precede the Faculty sessional meeting, at which there will be a presentation by the Stochastic Accreditation Working Party (chaired by Carl Dowthwaite) on asset models in life assurance. This presentation, which will begin at 5pm, will be followed by discussion.

Institute sessional meeting – London

On 24 November, the Institute sessional meeting will deal with the subject of realistic balance sheets and risk-based capital for with-profits business, on the basis of a background paper prepared by Peter Needleman.

In addition, the Life Supervision Committee has taken the lead in preparing a response to FSA CP195 – Enhanced capital requirements and individual capital assessments for life insurers (published in August with a deadline of end-November for comments). The response will follow the usual processes of internal clearance before being submitted to the FSA. The draft response will be available on the profession’s website in the week beginning 10 November and, because of the relevance of these proposals to the subject matter of the sessional meeting on 24 November, members who wish to comment on the draft response can do so direct at that meeting.

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