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Update from the FSA Wendy Hawes, General Insurance Actuary

Update from the FSA Wendy Hawes, General Insurance Actuary. The Barbican, Tuesday 17 May 2005. Update from the FSA. Agenda: ICAS Role of actuaries Authorisations Financial Engineering Contract Certainty. ICAS. General update Guidance Lloyd’s Run-offs Practicalities. ICAS - Update.

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Update from the FSA Wendy Hawes, General Insurance Actuary

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  1. Update from the FSAWendy Hawes, General Insurance Actuary The Barbican, Tuesday 17 May 2005

  2. Update from the FSA Agenda: • ICAS • Role of actuaries • Authorisations • Financial Engineering • Contract Certainty

  3. ICAS • General update • Guidance • Lloyd’s • Run-offs • Practicalities

  4. ICAS - Update • Over 70 request letters sent out • Circa 30 assessments live • 8 ICG levels determined, several about to go to panel • Guidance on time period and risk measures given in General Insurance Newsletter • Lloyd’s guidance document • Experience to date is that firms are late with their submissions

  5. ICAS - Update • Documentation of submissions is varied. Good practices were detailed as part of the General Insurance Newsletter • Early company work should improve in second submissions • Pragmatic decisions being made for some early decisions

  6. ICAS – “Guidance” • PRU 2.3.14G: We expect firms to submit an ICA over a 3-5 year period. We consider confidence levels of 97.5% over 5 years or 98.5% over 3 years to be appropriate. • If firms use a different time period they will have to justify this, especially in terms of allowing for the cycle.

  7. ICAS – “Guidance” • We expect firms to assess their reserve volatility to ultimate, not just over the time period being used! • We expect firms to consider the recoverability of reinsurance under adverse scenarios – not just best estimate • We will not specify a particular margin of capital to hold above ICG, that is up to the company to decide.

  8. ICAS – Approaches we have found helpful • Use an executive summary in your submission. This should detail the financials, ICA results split by PSB risks, comparison with net assets and ECR and also a brief outline of methodology • We do not intend to prescribe or rule out any particular methodologies.

  9. ICAS – Approaches we have found helpful • Reasons for including inadmissible assets • A full business plan split by line of business • 3 years key historic statistics • Sensitivity analysis of parameters used in an economic model • Adequate description of calibration methodology • Detailed parameterisation process for a key class of business

  10. ICAS – Lloyd’s • Consistent with company assessments • High level involvement in reviews • Close involvement in preparation of guidance document • 2006 figures due in June

  11. ICAS – Run-offs • We recognise that firms will not have access to additional capital in most circumstances • We will not routinely assess ICAs but companies should be able to produce one if requested to, unless….. • Significant business changes e.g. capital structure • Aim to be proportionate

  12. ICAS – Practicalities • Quality of some submissions is weak and we are, in these cases, asking for resubmissions - delays • We aim to get firm engaged rather than imposing ICG – again causes longer timescale • Obviously we are seeing many different approaches which makes this area of work very interesting • Pleased that companies appear to be finding it useful • We have welcomed the openness of most firms

  13. Role of Actuaries • Following the recommendations from the Morris Report which recommended that we consider consulting on the issue of reserved roles for GI Actuaries, it is our intention to progress that line of thinking • Potential controlled function

  14. Authorisations • For the year to Mar 2005 9 applications • Significant slowdown • Mostly restructurings, Niche players and financial guarantee companies • Nobody wishing to supply capacity in softening market

  15. Financial Engineering • Can obscure true financial position of firms • If properly constructed and presented can have appropriate uses • Letter sent to firms in March to establish use of financial engineering • Data due in end April

  16. Contract Certainty and business process reforms • High profile • Subscription market – London Market Reform Group • Non-subscription market – major insurers and brokers • Actuaries may need to be mindful of impact on settlements • Links to ICAS!

  17. QUESTIONS

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