Life Insurance Newsletter
Key information from the FSA for your firm
July 2010 | Issue 2
Welcome to the latest Life (QIS5), and I
What’s inside Newsletter. It’s hard to believe hope the
three months have passed since information we
provide on the
1 Introduction our last edition – they have
certainly been busy. newly released
With-profits regime review technical
You’ll be aware that the government specifications
2 From ICAS to Solvency II has announced its plans for our
future. Rest assured that our
with your Ken Hogg
business continues as usual. preparations FSA Insurance Sector
3 Preparing your firm for
implementation of Solvency II.
has announced While you should make every effort
to participate in QIS5, we’ve also
its plans for
4 Smaller insurers seminar
Credible deterrence and
our future. Rest
assured that our
considered how we can reduce the
load in other areas, and in this
edition you will find an important
recent enforcement cases
business continues message about our plans to do this.
Unfair contract terms as usual.
We’ve recently published our review
on the with-profits regime, which you
5 New online service
Small firms financial crime The more intensive supervisory
should read if you are involved in
that business. Our main concerns
philosophy we developed in response involve governance and post-sale
to the financial crisis, and specific policy holder communications.
Regulatory developments initiatives such as the Retail
in complaints handling Distribution Review and Solvency II I hope you find this edition helpful.
will continue and carry over to the If you have any feedback or ideas for
new bodies. improvement, please let us know.
We are asking you to participate in Ken Hogg
the Quantitative Impact Survey 5 Director, Insurance Sector
With-profits regime review
We recently published our with-profits quality of consumer communications. be the subject of further policy work
funds review. The review showed the Supervisors will continue to closely and any proposed changes will be set
performance of firms is mixed. Some monitor firms, and will expect action to out in a consultation paper by the end
firms are performing satisfactorily be taken where necessary. We are of 2010, and in 2011 for any policy
while a significant number are not encouraging all with-profits firms, proposals which might be directly
adequately demonstrating the whether involved in the review or not, affected by Solvency II considerations.
practices we expect from a well-run to consider our findings.
We also found that some For further information
Our main areas of concern are with-profits rules could be Library/Communication/
ineffective governance of with-profit strengthened to provide greater PR/2010/110.shtml
funds and significant weaknesses in the protection for policyholders. This will
Life Insurance Newsletter 2
From ICAS to Solvency II
As we move towards implementing Frequently Asked Questions they crystallise. If you have not
the Solvency II regime, we are already done so, you should consider
changing our approach to reviewing Q: Do I still need to calculate my ICA? whether to update your most recent
firms’ scheduled Individual Capital A: Yes, firms must continue to calculate assessment of the adequacy of your
Assessments (ICAs). This will their ICA for as long as the rules and overall financial resources. You should
ensure that both we and your firm guidance in INSPRU 7.1 remain in force. consider how the financial crisis
can focus resources on preparing affects or is likely to affect your firm
for Solvency II (including Q: Will the same criteria apply to as part of your base case capital
participation in QIS5), while all firms? projection, with further consideration
of extreme scenarios as part of your
ensuring your firm remains A: Yes, the evaluation will consider the stress tests as appropriate.
adequately capitalised. nature, scale and complexity of the
firm’s risks, available capital resources, Q: Will ARROW reviews continue?
This does not mean we are changing
the previous ICA review, ICG given and
our rules. Firms who are required to A: Yes, this communication relates to
ARROW risk assessments.
conduct an ICA in accordance with your ICA; the ARROW process is
INSPRU 7.1.15R must continue to Q: How will I know if you decide not to unaffected by this communication.
assess how adequate their overall proceed with a scheduled ICA
financial resources are in accordance submission? Q: I am participating in QIS5 – do I
with that rule and associated guidance. still need to do an ICA?
A: We will contact you and inform you
of this. A: Yes, participation in QIS5 does not
The change is that firms scheduled
affect the requirement to calculate
to submit their ICA for review during
Q: I feel my ICG no longer matches my an ICA.
the period leading up to the
implementation of Solvency II business – may I still request an ICG
review? Q: What happens if the Solvency II
will be evaluated based on certain implementation date is changed?
criteria. Based on this evaluation and A: We will consider requests to review
prevailing market conditions, we may previous ICG on a case-by-case basis. A: The implementation date is 31 October
2012; firms should continue to plan on
decide not to go ahead with scheduled It is important to note that we may
undertake further work, including in this basis. Any changes to the date
ICA reviews for certain firms.
connection with your ICA, at any will be formally communicated by the
Evaluation criteria will include:
time, or expect you to undertake European Commission, after which we
• the nature, scale and complexity additional work and to inform us of will consider and communicate the
of the firm’s risks; this if, for example, your risk profile potential impact on planning and
changes, there are significant changes preparations for itself and firms.
• available capital resources;
in market or economic conditions,
• the previous ICA review and and/or additional risks are identified
or crystallise. Further information
Individual Capital Guidance (ICG)
• ARROW assessments.
Q: Do I still need to notify the FSA of
material changes in my business?
More information can also be
found on our website:
A: Yes, all rules and guidance applicable http://www.fsa.gov.uk/Pages/
Please find here some FAQs you may About/What/International/
to the firm and which require the firm
find useful. solvency/index.shtml
to notify us remain the same.
The current financial crisis is a
If you have any further queries,
reminder that you should update your
please direct them to your usual
view of adequate financial resources as
risks evolve, and in particular should
July 2010 | Issue 2
Life Insurance Newsletter 3
Preparing your firm for Solvency II
Quantitative Impact Study (QIS5) Change in control
The European Commission published its standard formula or an internal process
call for advice and technical model; and
specifications for QIS5 on 6 July 2010. Consolidation of firms may increase
• use the QIS5 templates to test their over the coming years as various
You should take part in QIS5 if at all contingency planning, identify any regulatory reforms come into effect,
possible. It is important that QIS5 is gaps in their plans and prioritise including Solvency II.
completed realistically rather than on accordingly.
a ‘best effort’ basis as this will allow You are reminded that the Financial
firms to: The submission toolkit is expected to Services and Markets Act 2000 (FSMA)
be released by the Commission in earlyrequires individuals or corporate
• gain a greater understanding of the August, but you can start work now. bodies wishing to acquire or increase
impact the new requirements will control in a UK authorised firm to seek
have on their firm; You can address any queries about QIS5
to QIS5@fsa.gov.uk or get in touch
• test how well prepared they are with with your usual supervisory contact.
regard to the financial and capital You should also have received Further information
aspects of Solvency II, depending on invitations to various events and
whether the firm intends to use the briefings taking place this summer.
Call for advice and technical
Life liquidity premium market/insurance/solvency/
The question of whether and how a drafting of the relevant Level 2
liquidity premium might be allowed for implementing measures for Solvency II.
in the risk discount rate under Solvency While details, extent and scope have QIS5 web pages
II has significant implications for the not been finalised, current indications About/What/International/
UK life insurance sector. are that Solvency II may incorporate a solvency/qis/qis5/index.shtml
Following a joint Committee of
European Insurance and Occupational
Pensions Supervisors and industry task
We continue to engage with relevant
stakeholders in order to achieve an Delivery Solvency II newsletter:
force earlier this year, the European appropriate outcome for the UK newsletters/sol2_june10.pdf
Commission is now working on the insurance industry.
Change in control:
Annual report index.shtml
We have published our annual report for 2009/10. The report outlines
how we have performed against the priorities set out in our business
plan and against our statutory objectives.
For further information:
July 2010 | Issue 2
Life Insurance Newsletter 4
seminar Credible deterrence and
Our recent smaller insurers seminar was recent enforcement cases
an opportunity to discuss policy and
In line with our credible deterrence to adequately protect clients’ money
supervisory changes affecting them.
strategy, we are taking hard-hitting and assets. Way has been fined and
We outlined the importance of action against firms and individuals banned from the industry while
the new stress testing requirements who break the rules by imposing Shillaker has received a ban.
strong penalties and levying record
and discussed how they could be
applied proportionally to small firms. levels of fines. We recently announced
our largest ever fine to JP Morgan for http://www.fsa.gov.uk/pages/
Solvency II firms also had the failing to protect client money. Library/Communication/
opportunity to learn more about the PR/2010/096.shtml
qualitative aspects of Solvency II,
while those not subject to the
We have fined John Charalambous of
The Financial Associates Ltd for
Solvency II Directive discussed Library/Communication/
taking part of a customer’s mortgage
potential changes to their future PR/2010/089.shtml
advance, and attempting to defraud
prudential regime. We have taken action against two life insurance companies.
insurance brokers; Delwyn Way of
Having received very positive feedback,
we plan to run more of these seminars
Shield Insurance Consultancy Ltd
(Shield) and Adrian Shillaker of
on an invitation basis. Griffiths McAlister Insurance Brokers Library/Communication/
Ltd (Griffiths McAlister), for failing PR/2010/099.shtml
Unfair contract terms Recent speeches
‘Read and understood’ declarations
As contract terms are a tangible Last year we published an
Ken Hogg, Sector:
indicator of how firms treat their undertaking relating to a term in a speech on Solvency II at
customers, we constantly seek to raise firm’s contract requiring consumers the Informa Insurance Day
firm standards by providing guidance on to declare that they had read and conference
how to draft fair terms. We also seek to understood the terms of the http://www.fsa.gov.uk/pages/
challenge any unfair terms that we do contract. We have now published a Library/Communication/
find included in consumer contracts. statement providing further Speeches/2010/0518_kh.shtml
information on our views and the
approach that firms should take
when drafting or relying on
Ken Hogg, Sector:
seek to raise firm consumer declarations. speech on key priorities in
standards by regulation at the Institute of
providing guidance Economic Affairs
on how to draft
For further information
July 2010 | Issue 2
Life Insurance Newsletter 5
Small firms financial crime New online
We have published a review of The review involved 159 visits to smaller We have launched a new web-based
financial systems and controls in firms and was produced following system called Online Notifications and
small firms. The review contains recommendations from the National Applications (ONA). ONA allows you to
useful examples of good and poor Audit Office and the submit the following regulatory
practice which you may find useful in Financial Action Task Force. applications via the internet instead of
assessing whether any improvements using the old paper-based system:
are required at your firm.
For further information
• approved persons;
pdf/financial_crime_report.pdf • appointed representatives;
• variations of permissions;
Regulatory developments in • waivers; and
complaints handling • standing data.
ONA will make it easier for you to
We will publish the first Other areas of complaints handling
submit applications and enable us to
consolidated table of firms’ we are focusing on include:
process applications in a more efficient
complaints data in September.
• reviewing aspects of firms’ manner. Although it is currently
complaint handling rules following voluntary to use ONA, and you can
our review of complaints handling continue to send in applications to us
...firms that in major banking groups; and in the normal way, it will be mandatory
receive 500 or • reviewing the maximum award from September.
limit of the Financial Ombudsman
Service, which has remained at For further information,
a six-monthly £100,000 since it was established Doing/Regulated/ona/index.shtml
reporting period in 2001.
to publish a We will publish a Consultation Paper
summary of their in September setting out our
proposals on these areas. We are also
considering responses to DP10/1,
for that period Consumer complaints (emerging risks
and mass claims). This DP proposed
that a joint committee (the
This follows the introduction of rules Ombudsman, the Office of Fair Trading
that require UK authorised firms that and us) discuss emerging risks and Your feedback is important to us and we
receive 500 or more reportable mass claims. We intend to publish a would be grateful to know what you think
complaints in a six-monthly Feedback Statement later this year. of this newsletter. Suggestions for
For further information
reporting period to publish a improvement and general feedback should
summary of their complaints data for be sent to John Lavabre via email at
that period. pages/Library/Policy/
Alternatively you can call John on
020 7066 4320.
July 2010 | Issue 2