Tiner Insurance Report

Financial Services Authority
Insurance Sector Briefing:

Delivering the Tiner Insurance Reforms
April 2005
Contents
Foreword 3
1. 2. 3. 4.
Introduction and executive summary A fair deal for consumers Soundly managed insurance firms with adequate financial resources Smarter regulation of insurance firms
5 11 19 29
Annex: relevant FSA Publications
38
Insurance Sector Briefing: Delivering the Tiner Insurance Reforms
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Foreword
In autumn 2001, the FSA Board asked me to initiate a programme of reform to overhaul the way in which insurance companies were regulated to address the deficiencies of the regime we had inherited. To do so, it was clear to me that wholesale and systematic change across all fronts was needed. The modernisation of the insurance regime has been all encompassing. But in addition, the industry has had to respond to other commercial and strategic challenges in this period. For life insurers, these include a deep bear market in equities, the continuing shift from public to private pension provision, the erosion of consumer confidence in the long-term savings industry and with it the increasing unpopularity of the with-profits product, greater market concentration and the emergence of closed with-profits funds consolidators. For general insurers, the period has included the aftermath of the tragic events of 9/11, catastrophes such as the hurricanes in the US and the floods closer to home, significant consolidation in the reinsurance industry and the implementation of a new conduct of business regime following the Insurance Mediation Directive. This is to name but a few. In short, since 2001 the operating environment for the insurance industry has undergone nothing short of a seismic shift. Once thought of as the poor cousin of financial services regulation, insurance regulation in the UK is now holding its own and is broadly consistent with the regulation of other sectors. In particular, the newly-introduced requirement for all insurance companies to assess how much capital they actually need to support the risks of their business, and then hold commensurate financial resources, is a radical departure from the previous one-sizefits-all model. It also marks the very welcome much closer alignment of economic and regulatory capital. For life insurers, we have also fundamentally reviewed the framework within which discretion is exercised in the management of with-profits funds and how their financial condition is reported. We have issued new rules and guidance on the information made available to with-profits policyholders in both open and closed funds. More generally, our work to modernise the disclosure regime for all investment products continues. And we look forward to working with the industry and other stakeholders to introduce practicable requirements that address the shortcomings of the current regime. We have also radically altered our regulatory approach to Lloyds of London, bringing it into line with the way in which other non-life insurers are regulated. And we have implemented the Insurance Mediation Directive bringing retail and wholesale general insurance brokers within FSA regulation for the first time. We hope that these new constituents will seize on the advent of statutory regulation as a catalyst for modernising their processes and business models. In addition, we have introduced a new conduct of business regime for general insurers, thereby enhancing the protection for consumers.
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Change has also been apparent within the FSA as well. We have taken a long hard look at the way in which we regulate the insurance sector. True to our form as an integrated regulator, over the last few years we have focused on ensuring that supervisors give the right level of attention to a firms financial condition, the way it is managed and the interaction with its customers throughout the product or policy life-cycle. Our new risk assessment process has now become a fixed point on the regulatory landscape, with some international regulators looking to follow our lead. All but the smallest insurance firms have now been through the risk assessment process and through this recognise that the relationship with us has become more proactive and challenging than under the previous regulatory system. Importantly, the last few years have also seen something of a cultural change among our insurance staff. As well as increasing numbers by recruiting from the industry, there has been a greater push to help ensure that our staff have the correct skills and experience. This report marks the transition from design to delivery in respect of our original set of reforms. It seeks to compare and contrast the old with the new requirements and in doing so illustrate how the individual reforms interlock to reinforce a regime that should inspire confidence in the sector. Collectively, the reforms mark change of the highest order in the insurance industry. Once fully embedded, they will make for an industry that is collectively in stronger financial health and much better positioned to prosper in a world in which consumers wield increasing power. Three and half years on in 2005, it is clear the enormous progress that has been achieved has been possible only through the partnership approach that we adopted from the outset. But there is still more to be done to complete the implementation of the new regime. We also continue to be fully engaged in developments on the European and wider international fronts that will impact on the UK insurance sector. The impact of other initiatives we have taken since we started our modernisation programme will also be keenly felt in the insurance sector especially our work on Treating Customers Fairly and the depolarisation of the investment advice market. And, of course, our initiatives on contract certainty and the management of conflicts of interest in the general insurance market are providing new challenges and opportunities as well. We recognise fully the commitment that the industry has shown in helping us develop a modernised regime and, now that the foundations have been laid, we look forward to a continuing constructive partnership as the reforms bed in and become a reality.
John Tiner April 2005
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1. Introduction and executive summary
Background
1.1 In October 2001 the Economic Secretary to the Treasury asked the FSA to report on the actions we intended taking to implement the recommendations set out in the Baird Report into the FSAs regulation of Equitable Life. The Baird Report, which had been commissioned by our Board, made several recommendations about the regulation of the insurance sector.1 In addition to the concerns surrounding the regulation of Equitable Life, other issues pointed to the stark need for change in the regulation of the insurance industry. These included instances of mis-selling, the problems surrounding Independent Insurance and the low ebb of consumer confidence. In addition to this, the creation of a single unified regulator highlighted the significant differences between the regulation of insurance and other parts of the financial services industry. So the case for reforming the regime that we had inherited was therefore very clear; not only in terms of the specific rules for the sector but also in relation to the way in which these were applied by the regulator. The programme to modernise the regulatory regime was led by the then Managing Director, John Tiner, and had three distinct but interrelated component parts designed to help ensure: 1.4 a fair deal for consumers; soundly managed insurance firms with adequate financial resources; and smarter regulation of insurance firms.
1.2
1.3
Collectively, these became known as the Tiner Reforms, and were initially set out in The future regulation of insurance (November 2001) and The future regulation of insurance: a progress report (October 2002). 2005 is the year in which a critical mass of these reforms is being implemented from the integrated Prudential Sourcebook being switched on and changes to the role of actuaries in life offices, through to new reporting requirements and a new regime for with-profits.2 As such, this report marks the move from policy development to implementation and delivery, and sets out what has been achieved under each of the three broad headings above. The report also provides details of other policy developments and changes to the way we regulate the insurance sector.3 Although not strictly part of the Tiner Reforms, these illustrate further the scope and depth of the transformation that has taken place since 2001.
1 2 3
The Regulation of Equitable Life: an independent report, Ronnie Baird (September 2001). Some of the specific reforms described in this report notably changes to the prudential regime and the with-profits review, predated 2001 but were taken forward as part of the package of reform for insurers. Some of these, such as our approach to financial capability, Treating Customers Fairly and the risk assessment process, clearly have an application that goes well beyond insurance.
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1.5
Since the launch of the reform programme in 2001, a number of additional industry reports have been published, including Sandler and Penrose.4 We have taken full account of the recommendations of these reports in developing and taking forward the individual components of the Tiner Reforms.
A fair deal for consumers

1.6. Two of our four statutory objectives are directly associated with securing a fair deal for consumers: promoting public understanding of the financial system; and securing the appropriate degree of protection for consumers. Consequently, the fair treatment of customers is a central tenet of our regulatory approach across the financial services industry. Reforms to help deliver these objectives for insurance have centred on three main outcomes: 1.8 firms treat their customers fairly before, during and after the point of sale; consumers make better informed decisions; and a liberalised framework for financial advice.
1.7
The majority of these reforms have mainly affected life insurance firms. However, we have also introduced a new conduct of business regime for non-life insurance and intermediaries from January 2005 (along with the implementation of the Insurance Mediation Directive (IMD)), benefiting general insurance customers as well.
Soundly managed insurance firms with adequate financial resources

1.9 Consumers need to have confidence that the insurance firm they deal with is soundly managed and has sufficient resources to honour any commitment it makes. But as well as supporting our consumer protection objective, financial soundness is also key to securing confidence in the market. Complementing the reforms to help ensure that consumers get a fair deal, the second key area for change concerns the prudential regulation of insurance firms. Change has been wholesale, focusing on three outcomes: 1.11 adequate financial resources; sound management; and streamlined financial reporting.
1.10
Delivery on each of these three fronts has required a sustained effort from us and the regulated community, both in terms of developing the new approaches and also in implementing them. We believe that once fully embedded the new prudential requirements will make for a much fitter and financially sounder industry.
Sandler Review of Medium and Long-term savings in the UK (July 2002) and Report of the Equitable Life Inquiry (2004).
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Smarter regulation of insurance firms

1.12 Supporting the new regulatory requirements, the reform programme has also modernised the ways in which we go about the business of insurance regulation. Here, the reform programme has sought to: implement a proactive, risk-based regulatory approach, including deploying resources to areas of greatest risk; consolidate the structural changes already made within the FSA to deliver an integrated approach to regulating insurance firms, that encompasses both prudential and conduct of business issues; develop more effective working relationships with those firms posing a greater risk to our statutory objectives; and deliver insurance supervisors who operate effectively in the new environment.
1.13
The delivery of these reforms has radically altered the relationship between the regulator and the regulated, resulting in a much more cohesive and integrated regulatory framework that is underpinned by a challenging and proactive risk-based approach.
Cost benefit analysis and consultation

1.14 In line with the requirements set out in the Financial Services and Markets Act 2000 (FSMA), and our commitment to openness and transparency, we have publicly consulted on all of the rule changes and guidance that form part of the Tiner Reforms. We acknowledge that the volume of consultation material the modernisation programme has generated has been significant. We appreciate the efforts of the industry and other stakeholders in reading, digesting and responding to this material. It was important to us that the changes we planned would be workable, minimise unintended consequences on market structure and be proportionate to the risks identified. Since 2001, we also have made increasing use of detailed consumer testing of our proposals and have found dialogue with the industry to be extremely valuable and on the whole constructive. FSMA also requires that the benefits of the reform programme outweigh the costs. And, as such we have carried out full and rigorous cost benefit analyses for each change to the regime. Examples of where the CBA process has resulted in us altering our proposals include: the way in which we modified the definition of customers in the Insurance Conduct of Business sourcebook (ICOB); permitting co-mingling of client and insurer monies by general insurance intermediaries; limiting the requirement for firms to report on the realistic basis to those with withprofits liabilities in excess of 500m; and our decision not to require firms to send Consumer Friendly PPFMs to existing withprofits policyholders who do not receive annual statements.
1.15
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Conclusion
1.16 Together, the Tiner Reforms have transformed the regulatory regime for insurers. The impact of each individual reform will be significant and far-reaching: changes to the way in which insurers interact with their customers; changes to the way in which companies calculate how much capital they need to support the risks of their business; and changes to the way in which insurance companies manage their business. Combined with changes to the way in which regulation is carried out and the collective impact of the reforms becomes immense. This report marks the transition from policy development to implementation and, as such, it is too early to pass judgement on how the industry will assimilate and embed the reforms. Our objective was to modernise the regime so it will deliver an industry that is financially sounder and that serves both its investors and customers well, without interfering with market forces such as competition, innovation and choice.5 We believe the Tiner Reforms will achieve this. The table overleaf summarises the key reforms, illustrating the stark differences between the regime that we inherited and the modernised regime that is now being delivered. Regulation must necessarily evolve to keep pace with market developments, and this applies equally to insurance regulation as to any other sector. In addition to keeping a keen eye on developments in Europe and beyond, we will continue refining our own regulatory processes and monitoring the ways in which the industry responds to the new regulatory environment. If further changes are deemed necessary, we will take these forward in a proportionate and risk-based manner.
1.17
1.18
Both our prudential and conduct of business rules aim to deliver an appropriate degree of protection. But they do not attempt to deliver a zero-failure regime.
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Inherited regime A fair deal for Little information available for consumers about the way with-profits funds operate. consumers
Modernised regime
All with-profits firms are required to publish a Principles and Practices of Financial Management document (PPFM), setting out how they run their funds. This includes details on the application of smoothing, how bonuses and market value reductions are set etc. Consumer Friendly PPFM (CFPPFM) will be available from December 2005. New rules and guidance on what it means to treat with-profits policyholders fairly, covering the determination of payouts, surrender values and charges to the fund. Insurers proposing a reattribution will be required to appoint a 'policyholder advocate' to act as negotiator on behalf of policyholders. On closure to new business, with-profits firms must notify both us and their policyholders. Policyholders will also be informed of the options available to them. The introduction of PPFM (and in time CFPPFM) also provides greater clarity. We plan to introduce Key Facts for investment products, replacing the existing Key Features regime. We will also be exploring options to improve post point of sale disclosure. New risk-sensitive regime for with-profits, built on the 'twin peaks approach'. All life insurance firms with with-profits liabilities in excess of 500m required to hold the higher of: i) the regulatory peak: a calculation of the mathematical reserves together with a resilience requirement plus EC solvency margin; and ii) the realistic peak: the present value of expected contractual and 'fair' discretionary bonus payments plus a realistic capital margin. All general insurance firms will be required to hold capital equal to the Minimum Capital Requirement. An Enhanced Capital Requirement will then be used to inform the ICAS process (see below). Firms required to make their own assessment of the amount of capital they need in light of their own risk profile (Individual Capital Adequacy Standards). Individual Capital Assessments must be forward-looking, taking into account firms' business plans, strategy and capital planning. FSA then issues Individual Capital Guidance to determine the minimum level of capital that the firm must hold.
Lack of definition of what treating customers in with-profits funds fairly means in practice. Gaps in protection for policyholders in inherited estate reattributions.
Policyholders in closed funds often received poor information about implications of closure, performance and their options.
Inadequate product disclosure requirements at both point and post point of sale.
Soundly managed insurance firms with adequate financial resources
Capital requirements for life insurers were not risk-sensitive, rule-based and opaque.
Capital requirements for general insurers suffered similar drawbacks to life insurers.
'One size fits all' approach to capital adequacy standards.
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Role of Appointed Actuary obscured the responsibility for the senior management of life insurance firms for decisions on actuarial aspects of the business.
Role of the Appointed Actuary abolished with boards and senior management required to take responsibility for actuarial aspects of the business. The role of the Appointed Actuary redefined to create two new advisory functions: the actuarial function and the with-profits actuary function. Valuation of liabilities is now subject to audit with input from independent reviewing actuary. Annual Returns have been streamlined so that they are more useful documents, reflecting the changes to the prudential regulation of insurance companies. Single regulator enables supervisors to take an integrated view of all aspects of a firm's business, leading to better risk identification.
Annual returns from firms were difficult for advisers and policyholders to understand.
Smarter regulation of insurance firms
Prudential (financial and systems and controls) regulation and conduct of business (sales practices) regulation carried out by separate organisations. Senior management of firms failed to appreciate fully their responsibility for sound management of their business and the importance of open and transparent dialogue with regulators. No formal risk assessment made of individual firms. Regulation dominated by desk-based reviews of regulatory returns.
Increased emphasis on the importance of senior management responsibility in firms. This underpins the entire regulatory framework.
All but smallest insurance companies are now risk assessed. Greater emphasis placed on on-site visits, more focus on competence and responsibilities of firms' management and corporate governance arrangements. Increase in internal resources devoted to insurance regulation. New risk-based framework for supervision allows FSA to target resources to firms and issues that pose greater risk. Cross-FSA Insurance Risks Group established. Identifies emerging risks across the industry so they can be dealt with in a timely and proportionate way, often on a sector or industrywide basis.
No formal mechanism for allocating resources according to risk.
Firms typically viewed in isolation so problems could develop unchecked across entire sector (e.g. endowments).
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2.A fair deal for consumers
2.1
With two of our statutory objectives directly associated with consumers (promoting public understanding and securing the appropriate degree of consumer protection), it is absolutely clear that much of our time should be spent on helping them to secure a fair deal. In this respect, the Tiner Reforms have concentrated principally on issues surrounding disclosure and transparency. In addition, there have also been important developments that go well beyond the insurance sector, most notably in our work on financial promotions, and the broader Treating Customers Fairly (TCF) initiative.6 As well as new rules and guidance to help ensure that consumers get a fair deal, there is a clear need for a greater push on financial capability to help redress the imbalance of information that typically characterises the relationship between the financial services industry and its customers.7 For insurance, this is particularly important given the complex nature of products such as with-profits policies. The reforms described in this chapter were designed to help deliver the following three outcomes: firms treat their customers fairly before, during and after the point of sale; consumers make better informed decisions; and a liberalised framework for financial advice.
2.2
2.3
2.4
In addition, we have also recently introduced a new conduct of business regime for general insurers and intermediaries. Although not part of the Tiner Reforms original scope (the regime was implemented as part of the IMD), these new requirements will help deliver a fair deal for general insurance customers also. It is early days to see the impact of these reforms. But we would expect that once fully embedded they will contribute to restoring consumer confidence in the industry.
2.5
Firms treat their customers fairly before, during and after the point of sale
2.6 One of the principal concerns we had over the inherited regime related to the opacity and complexity of with-profits and some aspects of the way in which with-profits policyholders were being treated. The inadequacy of the existing disclosure requirements
6 7
Treating Customers Fairly progress and next steps (July 2004) We made clear in the original report on the Tiner Reforms that, as set out in FSMA (s. 5(2)), we support the general principle that consumers should take responsibility for their own decisions. That position remains unchanged.
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was another catalyst for reform. Consequently, key deliverables have included the radical transformation of the way in which with-profits funds are regulated, including making more information available to consumers. In addition, we continue to develop a new disclosure regime encompassing both point of sale and post sale. 2.7 Although we have indicated that TCF is a principles-based initiative, we have also made clear that if necessary we will consult on adding to the Handbook with rules and guidance on specific areas that require attention. With-profits was one such area where it was clear that there was a need for greater definition on what treating policyholders fairly meant. Reforming with-profits 2.8 In response to increasing concerns over with-profits products, we announced a wideranging review of with-profits business in February 2001. Although this began prior to the launch of the wider Tiner Reforms, the changes that the With-Profits Review recommended have been folded into the broader modernisation programme.8 The main step that we have taken to increase transparency in how with-profits funds are operated is through introducing publicly-available documents known as PPFM (Principles and Practices of Financial Management). Designed to set out how an insurer manages its with-profits business, the PPFM covers key information, including how policy payouts are determined, the investment strategy and charges and expenses. Since April 2004 insurers carrying on with-profits business have been required to produce these documents and to make them freely available to policyholders. Although still in their infancy, it is clear that PPFMs have proved a valuable governance discipline. However, to help ensure that consumers read and understand the most important information that is contained in them, we are also requiring firms to produce a consumerfriendly version by December 2005.9 We will be working closely with the industry to help introduce higher quality documents and greater consistency of format. We will also be exploring ways to promote their use by the advisory sector and other external stakeholders. All with-profits companies are now also required to report to policyholders on whether they have complied with the PPFM obligations. The with-profits actuary will be required to report publicly on whether, in their opinion, the insurers report to policyholders and the discretion it has exercised may be viewed as having taken policyholders interests into account in a reasonable and proportionate manner.10 In addition, new guidance on governance standards supports the desirability of bringing independent judgement to bear on the assessment of an insurers compliance with its PPFM and how it has handled conflicts of interests between different groups of policyholders and, if relevant, between policyholders and shareholders.11
2.9
2.10
2.11
8 9 10 11
Full details of the With-Profits Review can be found on the FSA website: www.fsa.gov.uk/pubs/other/with_profits/ PS05/01: Treating with-profits policyholders fairly feedback on CP04/14 and made text (Jan 2005) Reform to the role of actuaries in life offices is covered in more detail in the next chapter, paragraphs 3.33 3.40. A survey that we carried out in November 2004 indicated that in response to this guidance, a number of with-profits insurers are now introducing With-profits Committees of the Board.
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2.12
New rules and guidance on treating with-profits policyholders fairly will also be introduced later this year. Codifying good practice in the industry, these address how the firm determines payouts, surrender values, charges to the fund and terms for new business.12 Going forward, when a fund closes to new business it will be required to notify both us and its policyholders promptly. Further, it must inform policyholders of options available to them and submit a run-off plan to us. We have also introduced new rules and guidance to improve the process for the reattribution of inherited estates to ensure that policyholders interests are adequately represented. These take account of concerns voiced over the processes followed in a number of reattributions carried out between 1985 and 2000, including some confusion about the regulators role. The central plank of our new requirements is to require insurers proposing a reattribution to appoint a policyholder advocate to act as negotiator on behalf of policyholders. Treating Customers Fairly
2.13
2.14
We have described above the specific measures we have taken to help ensure with-profits policyholders are treated fairly. But, more broadly, TCF in its generic sense is a key priority for the FSA that we see as helping tackle the range of market failings of recent years. If successful, TCF will contribute to restoring confidence in the financial services sector. Most importantly, we want to ensure that firms senior management take responsibility for their obligation to treat their customers fairly.13 In many cases, this is likely to involve greater or more effective disclosure and transparency, consistent with the specifically targeted work on with-profits as described above. Evidence of positive steps that some regulated firms, including insurers, are taking to ensure they are treating their customers fairly is starting to emerge. However, progress is not uniform across the insurance sector and it is clear that some firms need to do much more than others. We recognise the valuable contribution that organisations such as the Association of British Insurers (ABI) are already making in this area and will continue to work with the trade associations and consumer bodies to bring about the standards we expect of the firms we regulate. As we have no current plans to introduce additional rules on TCF in the wider sense, to help firms understand what we expect of them we have begun publishing material on our website giving examples of good and bad practice. In June, we will publish a progress report on work that has been completed and set out our priorities for the coming year. At that stage, we also plan to publish a series of case studies which we hope will further help companies implement their strategies. Assessing TCF will be built into the normal supervisory process, but at this stage our focus has been to establish whether companies are evaluating where they are and taking steps to implement TCF strategies. As time goes on, we will increasingly want to look at more detailed aspects of individual businesses. Given our new responsibility for insurance intermediation and a new conduct of business regime for general insurers, we will be starting to consider the application of TCF in this market.
PS05/01: Treating with-profits policyholders fairly feedback on CP04/14 and made text (Jan 2005) Principle 6 requires firms to pay due regard to the interests of their customers and treat them fairly.
2.15
2.16
2.17
12 13
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Disclosure review 2.18 It is clearly in consumers (and the industrys) interests that the disclosure regime is as effective as possible so that consumers can make more informed decisions about what they are buying and understand better the consequences of their purchase. But our research has shown that consumers often find the information they receive difficult to understand. They may also be put off by the length or not even read the material at all. Having already implemented Key Facts for buyers of mortgages and general insurance products, in 2005 we will launch Key Facts as the main disclosure vehicle for buyers of investment products, replacing the existing Key Features regime.14 This will bring significant benefits, with consumers seeing clear, concise and consistent information (including on costs) about the products they are buying. In addition to the literature that is given to consumers at the point of sale, it is also clearly important that policyholders are kept informed of how a product or service is performing throughout its life cycle, so they can manage their finances effectively. The existing postsale requirements do not apply to all packaged products.15 We recognise that the ABIs Raising Standards initiative has made a valuable contribution in this area by requiring accredited firms to provide their customers with yearly statements on the progress of their investment, but it is clear that more needs to be done. The Disclosure Review therefore continues to focus on improving the quality of information on packaged products provided to customers both at, and after, the point of sale. Our aim is to publish a Consultation Paper later this year, setting out: feedback from our initial consultation on disclosure (CP170) on the consumer information supplied at the point of sale for packaged products and on further research and policy work we have conducted in light of that consultation; new proposals for Key Facts for investment products, to replace Key Features. These proposals will include our response to the Treasury Select Committees recommendations that we develop a summary box for key information on investment products and explore the viability of a standardised consumer-friendly risk rating system; feedback on our Discussion Paper on projections (DP 04/01) and proposals for a new approach to projections; and new proposals for information after the point of sale on packaged products.
2.19
2.20
Financial promotions 2.21 Again, despite having a wider application than just insurance, our work on financial promotions is critical in helping us ensure that consumers get a fair deal. In particular, we want firms to be clear on how they think about customers from the product design stage onwards.
This is the principal disclosure vehicle to date for packaged products. Packaged products include: life policies with an investment element; personal pensions, including stakeholder pension schemes; units or shares in collective investment schemes; and investment trust savings schemes. In addition, for some products (such as pensions) there is a requirement for firms to produce annual statements, whereas for life policies no similar requirement exists.
14
15
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2.22
Our role involves: reviewing promotions in a variety of media; investigating complaints made to us by members of the public and firms; assessing firms systems and controls through visits; communicating with the industry and consumers about the work we are doing and explaining what they can do to help themselves and us; and taking appropriate regulatory action where firms do not comply with our rules.
2.23
To encourage both consumers and firms to report promotions that seem misleading or unbalanced, we now have a Financial Promotions Hotline and an online reporting form. The Hotline was launched in July 2004 and has proved a valuable source of intelligence for our monitoring work. Unfair contract terms
2.24
Under the Unfair Terms in Consumer Contracts Regulations 1999, we consider complaints about clauses in particular contracts and carry out thematic reviews to identify terms that cause significant consumer detriment. One output of this work will be a Statement of Good Practice on premium review clauses. This will set out our views on what firms need to do to ensure that terms giving firms the power to vary the premiums payable for certain life and long-term health-related policies are fair and operated fairly. Complaints handling
2.25
Across the FSA we have been examining the ways in which firms handle customer complaints and the use they make of complaints data to improve the quality and suitability of their products and advice. As we set out in a Dear CEO letter issued at the end of 2004, one area of particular concern in the insurance sector related to mortgage endowments. Through supervision and enforcement action if necessary we will continue working to ensure that insurers take the necessary steps to review their processes and comply with our requirements.
Consumers make informed decisions

Financial capability 2.26 We believe that increased public understanding and awareness will deliver more capable and confident consumers who will be better equipped to: manage their financial affairs successfully; exercise a greater influence in the retail market; be in a position to take greater responsibility for their own actions; and be better able to protect themselves through less mis-buying and by being less susceptible to mis-selling.
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2.27
The National Strategy for Financial Capability is a long-term project involving a range of partners Government, the financial services industry (including some insurers), trade associations (including the ABI), employers organisations and trade unions, the media, consumer organisations and the voluntary sector. Launched in November 2003, the Strategy aims to deliver a step change in financial capability, through a combination of information, education and generic advice. A Steering Group, led by John Tiner but drawing on expertise from across the financial services industry and beyond, will drive the Strategy forward. Although the Strategy is clearly relevant to all consumer-facing financial services sectors, delivering greater financial capability would have a tangible impact on the insurance sector, given the broad exposure that consumers have to the sector, through products ranging from household and motor insurance through to critical illness and annuities. The Strategys work has been split into seven priority areas. These are: schools, young adults, families, workplace, borrowing, generic advice and retirement. Key deliverables include: the launch of the schools project by the end of the third quarter in 2005, which aims to enhance resources for teaching personal finance education in schools; the publication during the second quarter of 2005 of good practice research on how to raise financial capability among young adults; developing the business case for rolling out financial capability initiatives in the workplace, during the third quarter of 2005; launching a financial healthcheck tool on websites (including our website) in the second quarter of 2005. This will help consumers to identify and understand their financial needs, identify possible priorities and next steps and identify other relevant sources of information and advice; a credit self-assessment tool will be launched during the third quarter of 2005, which will allow users to gain an understanding of whether they are at risk of becoming overindebted; and establishing a modest innovation fund for the voluntary sector to support new ideas for, and ways of, increasing financial capability.
2.28
2.29
2.30
In addition we are carrying out a comprehensive baseline survey to measure levels of financial capability. This is the first time that such a survey has been conducted and it will allow us to measure improvements in financial capability in the future. We will publish the results of this survey in the first quarter of 2006. Consumer information provided by the FSA
2.31
We continue providing consumer information and services through our consumer website, publications and contact centre, including a range of materials on insurance-related issues. Most recently, addressing specific concerns over consumer understanding of with-profits products, we published a list of ten questions designed to help with-profits policyholders
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think through the types of issues that they need to consider when making decisions about their investments. We will be looking at other ways of improving consumer understanding of with-profits. 2.32 Since their launch in 2001, our comparative tables now cover a wide range of products including personal and stakeholder pensions, investment bonds and pension annuities.16 This is a web-based service to help consumers compare the features of a range of financial products, giving data on 220 different products from around 60 different providers. We will also be looking at incorporating meaningful measures of with-profits insurance firms financial strength in the tables, once the new realistic reporting regime (as described in the next chapter) has bedded down.
Liberalised framework for financial advice

2.33 The final major component of this aspect of the reform programme relates to the delivery of a liberalised framework for financial advice.
Depolarisation and the new basic advice regime for stakeholder products
2.34 At the end of 2004 we introduced new measures to reform the way in which retail financial products are sold to consumers.17 Improved disclosure, transparency and greater consumer choice under the new regime should bring significant benefits. Following a six month implementation period, all companies will need to comply with new rules on 1 June 2005. The introduction of the new basic advice regime for Sandler products in April 2005 will also contribute to the changing dynamic of the distribution of retail investment products in the UK. The new regime for basic advice will offer a simpler, quicker and lower-cost form of advice to consumers interested in buying the new stakeholder products. In developing this, our aim has been to ensure it will provide adequate protection to consumers. We recognise that the move from policy development to implementation may impact on the structure of the retail market and we remain alert to any risks that may emerge. We will monitor developments closely to determine whether depolarisation and basic advice have delivered the intended benefits of enhanced competition and consumer choice. As part of depolarisation, we have introduced requirements for firms to produce two new disclosure documents to increase transparency and to help consumers gain a better understanding of the choices available to them. The Initial Disclosure Document sets out the scope of advice that a firm can offer and will include information about its product range. In addition, firms will also be required to produce a fees and commission statement upfront. Commonly known as the menu this will disclose a firms cost of advice and will help consumers to identify, understand and compare key information before buying financial products.
2.35
2.36
2.37
2.38
16 17
Comparative data on mortgage endowments was withdrawn in August 2004 due to the low number of product providers. This was the culmination of a fundamental review of financial advice, which concluded that the old polarised regime hindered competition.
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A new conduct of business regime for general insurers

2.39 Although not included in the scope of the Tiner Reforms, another key change to the regulatory regime for insurers has been the introduction of a new conduct of business regime for general insurers and intermediaries. Following two years of extensive consultation, on 14 January 2005 we started regulating the sale and administration of non-investment insurance contracts by insurers and intermediaries. This extension of our remit stemmed from the Governments decision to implement the Insurance Mediation Directive (IMD) through FSA rules and to introduce a level playing field by applying conduct of business regulation to insurers. It involves around 40,000 firms and Appointed Representatives in all including around 14,000 firms that were authorised for the first time. We hope that those new to regulation will seek to capitalise on the advent of statutory regulation to modernise their processes and business models. Much of the new regime reflects EU directive requirements. Where we have gone beyond directive requirement we have tailored our approach so that it is proportionate to the risks associated with insurance mediation and reflects the diverse and complex nature of the market. The requirements of the new regime include the following: High-level standards, including the Principles for Businesses and the need for firms to have adequate systems and controls. The Insurance: conduct of business sourcebook (ICOB), which sets out the standards firms must meet when selling insurance including the information they must give customers about insurance policies and the mediation service they are providing. The ICOB rules also set standards insurers must follow when handling claims. Many of these rules reflect various directive requirements. Different rules apply to commercial and retail customers, with the rules for the latter providing a greater degree of protection. Financial resource requirements, including a requirement for intermediaries to hold professional indemnity insurance and to operate segregated trust accounts if they hold client money (both of which reflect requirements of the IMD). Complaints and compensation arrangements. We have extended the compulsory jurisdiction of the Financial Ombudsman Service (FOS) to insurance intermediaries and brought them within the scope of the Financial Services Compensation Scheme (FSCS).
2.40
2.41
2.42
2.43
The new regime will benefit consumers through: clearer product information in the form of a Key Facts policy summary that sets out any significant and unusual exclusions; standards to ensure that any policy recommended to them is suitable for their needs; and access to the FOS if the firm does not resolve their complaint and to the FSCS if the firm gets into financial difficulty or becomes insolvent.
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3.Soundly managed insurance firms with adequate financial resources

3.1 The previous chapter sets out what we have done to help ensure that consumers get a fair deal. Principally, these reforms focus on the interface between the customer and the insurance firm or intermediary. However, insurance firms also need to be soundly managed and have adequate financial resources. This chapter describes the changes that have taken place since 2001 to support sound management practices and to place the industry on a more robust financial footing. Our reforms seek to deliver the following outcomes: 3.3 adequate financial resources; sound management; and streamlined financial reporting.
3.2
The rules and guidance on prudential standards and systems and controls for insurers are now incorporated in the Prudential Sourcebook, which came into effect on 31 December 2004. For large firms with with-profits liabilities in excess of 500m this introduced the requirement to produce a realistic balance sheet including provisions for discretionary benefits and a risk-based capital requirement. For general insurance business an Enhanced Capital Requirement (ECR), again on a risk-based approach, must now be calculated and reported to us. Addressing concerns over the role of actuaries in life insurers, we have also introduced an entirely new framework, which has involved abolishing the role of Appointed Actuary. Our reporting requirements, which remain in the Interim Prudential Sourcebook for insurers, have also been updated to reflect the new regime. In addition, we have overhauled the way we regulate the Lloyds of London market, bringing this into line with the way we regulate the rest of the insurance sector.
3.4
Adequate financial resources

New capital requirements 3.5 It is widely recognised that the existing capital requirements for insurance companies as set out by the European Directives are inadequate and not sufficiently risk-sensitive. And although the EUs Solvency 2 programme to reform the current directives is ongoing, the framework has not yet been determined and implementation is still some years away. For life insurers writing with-profits business, the previous capital requirements effectively allowed
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insurance firms to ignore some significant non-contractual promises including policyholders expectations that they would receive a fair terminal or final bonus. Even for contractual options or guarantees to pay minimum benefits, firms measurement approaches were not as robust as might have been expected. Previous provisioning and capital requirements for general insurers were also generally too low and not sufficiently risk-responsive. 3.6 Regulators in the UK and a number of other EU member states have recognised the shortcomings of the current directives, but in practice have adopted differing approaches to improve prudential regulation. In the UK, for example, historically we have typically expected with-profits life insurers to hold a minimum of around two times the EU solvency margin requirement. A similar rule of thumb applied to non-life firms depending on their lines of business. In comparison, other EU regulators expect insurers to include margins for prudency in provisions for claims. Despite the plans for Solvency 2, which are discussed in more detail below, we felt it was essential to reform our domestic capital adequacy framework without delay. This is because of the significant weaknesses in the statutory regime for life insurers that were exposed in the bear market of recent times, and the increase in the number of non-life insurers going into run-off due to their inability to raise new capital. As such, we moved ahead of the Solvency 2 timetable to introduce a new solvency regime for the UK. Our new regime provides a framework which facilitates the systematic, risk-sensitive and more transparent consideration of the adequacy of a firms financial resources. We also think it will have a positive impact on the way in which general insurance firms manage the underwriting cycle, as the ECR is less sensitive to falls in premiums. We have also introduced new rules for insurance groups, including implementing the Financial Groups Directive. These cover the calculation of the group solvency position for groups headed by an insurance holding company, as well as the calculation of the adjusted solo position. For insurance groups headed by an EEA insurance holding company, a hard group solvency test will apply from the end of 2006 with public disclosure of the result from the end of 2005. Life insurers 3.8 For with-profits life insurers, the new regime is built upon what we term the twin peaks approach. This requires life firms that have with-profits liabilities in excess of 500m to make a realistic assessment of their with-profits liabilities (including discretionary benefits) and of the associated risk-based capital based on specified stress and scenario testing (the realistic peak), to determine whether they need additional capital to that determined by the regulatory basis, excluding any allowance for future annual or final bonuses (the regulatory peak based on current directives).18 Since June 2002, firms have been preparing for this fundamental change by submitting to us realistic numbers on a six-monthly basis. Our regulatory requirement to adopt market consistent modelling of assets and liabilities has required with-profits firms to enhance
3.7
3.9
18
Life offices with liabilities in excess of 500m make up around 97% of the market. Those with-profits firms with liabilities of less than 500m have the option of adopting the twin peaks approach, but are not obliged to do so. They are, nevertheless, still required to hold capital to the EU minimum and meet our threshold conditions.
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their systems and processes significantly. Firms have risen to this challenge and as result we now have in place a more appropriate measurement of the liabilities of with-profits life insurers. In line with the three pillar Basel structure, we have also introduced a requirement for full disclosure of the methods and assumptions used by firms for their realistic asset and liability calculations. As we go to print, the new realistic balance sheets are due to be published, but data for end-June 2004 showed that all with-profits firms had met the new requirements, with an aggregate realistic surplus across the sector of 23bn. 3.10 In moving to realistic reporting, many firms recognised they had not quantified some liabilities accurately in the past and so had failed to establish appropriate levels of capital to match all their liabilities.19 Consequently, a number of funds needed additional financial resources. If a firm is unable to raise additional capital in such a situation, it may have to consider reducing benefits to policyholders. Sometimes known as management actions this can take a number of forms including, for example, cutting allocations or payouts, reducing the equity backing ratio, or charging policyholders explicitly for the guarantees given. Such management actions are an acceptable part of the running of a with-profits fund, so long as the firm continues to treat its policyholders fairly. In 2004, we did a significant amount of work to ensure that realistic balance sheets were fair to policyholders and consistent with firms PPFM. How firms ensure they hold adequate capital is for them to decide. However, we are properly concerned that firms have an asset mix and capital resources which enable them to meet their commitments to policyholders. We will review whether to extend the realistic approach to non-profit business and whether to make it compulsory for small firms to adopt a twin peaks approach at a later stage. Case study: regulatory pragmatism in response to market conditions Although we planned to introduce realistic reporting to all with-profits firms with liabilities in excess of 500m for the end of 2004, when markets fell in 2002 and again in 2003 many life offices were feeling the pressure to engage in forced selling of equities. So in January 2003, we wrote to all chief executives of life insurance firms to explain our proposals to move to the realistic method of reporting and pointing to the options available. In particular, we indicated that for well-managed and strong firms, we would consider favourably applications for a waiver or modification to the rules on the calculation of certain liabilities. This was provided that firms continued to meet the EU solvency requirements and the minimum requirements of the realistic approach. In doing so, we effectively accelerated the introduction of realistic reporting, giving firms greater flexibility in the face of volatile market conditions.
3.11
19
Notwithstanding this, the industry has largely welcomed the new regime, with a number of the larger insurance companies publicly supporting the FSAs moves to develop and introduce realistic reporting.
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General insurers and reinsurers 3.12 For general insurers and reinsurers the new regime is similarly more risk-sensitive, with companies required to calculate an ECR. This aims to take account of the levels of risk inherent in different types of assets. The ECR will remain a soft test for the time being.20 The ECR forms part of our considerations in setting Individual Capital Guidance (ICG). ICG may be set at a higher level than a firms Solvency 1 capital requirement (the Minimum Capital Requirement, or MCR). For some, there may be no impact because the company already holds capital at, or above, the level at which ICG is set. Others will need to respond, for example by raising new capital or by reducing the risks they face or underwrite. Individual Capital Adequacy Standards (ICAS) framework 3.14 Our individual capital adequacy framework recognises that a standardised approach to determining capital requirements may provide an appropriate treatment of a typical presentation of risks. But it cannot adequately reflect each firms individual risk profile. So ICAS provides a framework for systematically considering the individual financial resources requirement of each insurer. In essence, the senior management of an insurer must carry out its own assessment of how much capital the firm needs given its business model and risk appetite. This is submitted to the FSA and we then make our own assessment of whether this is an appropriate level of capital for the company. We then issue ICG reflecting our own assessment of how much capital is required to support an insurers individual risk profile. All insurance firms are now required to have completed their Individual Capital Assessment (ICA), and we will be reviewing these in a risk-based sequence over the coming two and half years. The new framework allows us to be proactive in monitoring the financial soundness of individual insurers, with the introduction of ICG providing us with a clear regulatory intervention point. We recognise that this is a developing field and look forward to the benefits the new regime will bring.
3.13
3.15
European directives and International Accounting Standards

3.16 The Tiner Reforms focus exclusively on modernising the domestic regulatory regime for insurers. However, the new prudential requirements must be seen against a wider background of relevant European insurance directives and international developments, many of which could have major implications for the UK regime. Many of these will not be resolved in the short term. Now that the domestic regime is largely in place, much of our focus will be directed at EU and international developments to help secure outcomes that are not incompatible with the new UK regime. Solvency 2 3.17 Of all these developments, Solvency 2 could potentially have the greatest impact for the insurance sector. We take this very seriously and have committed significant resource to the Committee for European Insurance and Occupational Pensions Supervisors and in support of HM Treasury.
As a soft test, the ECR is reported to us on a private basis. Clearly though, firms are still required to meet our threshold conditions.
20
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3.18
As described above, the case for a thorough root-and-branch reform of solvency in Europe is clear. The existing regime is not sufficiently risk-sensitive and market developments have highlighted the frameworks inadequacies. Our decision to introduce a more risk-sensitive solvency regime in the UK underlines the importance and urgency we attach to modernising insurance regulation. As with our domestic regime, we believe that the three-pillar framework adopted in Basel for banking is also suitable for the insurance sector. As such, we advocate the importance of risk responsive pillar 1 capital requirements, the pillar 2 supervisory review (including the ability to set individual capital requirements above the pillar 1 requirement as necessary) and the pillar 3 disclosures to harness market discipline. We strongly support the development of Solvency 2 as a crucial step in securing adequate consumer protection and stable markets. We are pleased to be able to share our experiences of introducing a riskbased capital regime with our European partners through the Solvency 2 working groups. Although a Commission proposal for a Framework Directive is not expected until 2006 (with implementation anticipated in 2010), the pace of developments is starting to pick up. As such, it will become increasingly important that firms also begin engaging with the proposals to introduce a revised pan-European solvency framework. Reinsurance Directive
3.19
3.20
3.21
The Reinsurance Directive is intended to create a single market in reinsurance (similar to that which already exists for direct insurance) and to remove remaining barriers to trade within the EU, such as supervisor-imposed collateral requirements. This would allow pure reinsurers to write business cross border within the EU, based on home country prudential supervision. The directive is intended to be an interim measure, generally applying the requirements of the current Solvency 1 Directives for direct insurers to reinsurers. A full re-examination of reinsurers solvency requirements is expected as part of Solvency 2. As one of the member states which already supervises pure reinsurers in essentially the same way as direct insurers, and in the light of the interim nature of the directive, our intention in the negotiations has been to establish a sound and prudent regime which does not impose additional requirements on pure reinsurers which are not justified on prudential grounds. We will continue advising HM Treasury and UKREP as required and, if the Directive is adopted, will consult on implementation within the UK. It is possible that we will consult on implementation in the first half of 2006, with implementation at the end of 2007. International Accounting Standards (IAS)
3.22
3.23
The International Accounting Standards Board (IASB) has issued an interim standard on accounting for insurance contracts (IFRS 4) while it continues to develop a robust longterm solution. The interim standard permits insurers moving to IASs to continue with their existing accounting policies for insurance contracts (with some exceptions) or to change them so long as the changes are consistent with the IASBs declared long term objectives. Following the Penrose Report, the UK Accounting Standards Board rapidly developed and
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issued a new accounting standard on life insurance contacts (FRS 27), to apply in 2004. This would roll forward as existing GAAP when insurers moved to IASs in 2005. FRS 27 was based on our realistic reporting regime for with-profits business. 3.24 The IASB has been working on long-term solution for insurance contracts since 1997. In view of the continuing controversy over accounting in the financial services sector, the IASB has recently announced it will go back to first principles on insurance and has set up a new advisory committee. Although any standard is unlikely to be introduced before 2009, it is expected to reflect the time value of money. We will continue to monitor developments very closely.
Sound management
3.25 As well as delivering capital adequacy, the new prudential rules impose requirements on firms to maintain effective risk management practices. Identifying, assessing and managing risk is a fundamental part of good business management and features strongly in all of our requirements for insurance firms. It is greatly encouraging that even at this early stage of the new regime, the industry also recognises the commercial benefits of developing good risk management practices.21 These are essential for responding to emerging risks, such as changes in longevity and legislative outcomes. There is, however, plenty of scope for improving current risk management practices. In 2003, we carried out our own research into the risk management practices and procedures in the UK insurance industry.22 It is clear that, since we began carrying out risk assessments in 2001, many insurers have improved the way they manage risk. The review identified a number of positive developments for example, most firms had made good progress in putting in place processes that will enable better identification, assessment and control of risk, such as senior management committees, risk assessment functions and management information. Against this steady improvement, however there were, pockets of weakness. These included: lack of independent and objective assessment of risks; underdeveloped or in some cases un-defined risk appetites; poor quality of management information; a lack of consideration of risks arising from the operations of other group companies; and a lack of co-ordination between internal audit, risk assessment functions and those responsible for assessing capital requirements. We plan to repeat the study of risk management practices in 2006 to ascertain the impact that our reforms have had on this important aspect of the management of an insurance company.
3.26
3.27
Systems and controls

3.28 The Interim Prudential Sourcebooks for insurers and friendly societies (IPRU) and the Lloyds sourcebook (LLD) included less detailed guidance on some aspects of systems and controls in
21
In a recent survey of European Property and Casualty insurers, an overwhelming 95 per cent of respondents agreed that effective and competent risk management can reduce solvency capital requirements (Risk and Capital Management for Insurers: a KPMG International Survey of Capital Assessment Practice, November 2004). Review of UK Insurers risk management practices (October 2003).
22
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comparison with the sourcebooks for other financial services sectors. As a consequence, we have introduced new and more extensive guidance for insurance companies on: high-level controls (including the composition and role of the governing body, apportionment and definition of management responsibilities, and the audit committee); responsibilities of the risk assessment function; internal audit (including its mandate and reporting lines, audit plans and reports, and outsourcing); management information needed to identify, measure and control risks in the business; outsourcing (including issues to consider, contracts with suppliers and service level agreements); and risks arising from a companys relationship with the rest of the group to which it belongs.
These have now been incorporated into the Prudential Sourcebook. 3.29 High-level operational risk systems and controls requirements, where the risks are organisational rather than prudential, have been relocated to SYSC 3A. These requirements came into force for insurers at 31 December 2004 and cover: people; processes and systems; external events and other changes; outsourcing; and insurance.
Financial engineering
3.30 In 2002, we consulted on our regulatory approach to insurers use of financial engineering. We indicated that, if properly constructed and presented, financial engineering can be a valid method of strengthening a firms solvency position so long as there is a genuine and material transfer of risk to an unconnected counterparty. We also made clear that financial engineering could potentially be used to obscure the underlying financial condition of a company, thereby misleading consumers and/or regulators. For life insurers, the introduction of realistic reporting and other changes to the Annual Returns (such as the Valuation Report) help make more transparent the extent to which the balance sheet is supported by such arrangements and the nature of the arrangements put in place. We have amended our rules and guidance to reflect the phasing out of implicit items by the end of 2009, in line with the Solvency 1 changes to the Consolidated Life Directive. We are currently establishing the extent to which general insurers engage in financial engineering (for example through the use of finite reinsurance) and what systems and controls they impose over this type of business. We will be doing more targeted thematic work on this in the coming period and considering enhanced disclosure.
3.31
3.32
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The role of actuaries in life offices

3.33 The With-profits Review, and the Baird investigation into our regulation of Equitable Life, identified a number of significant weaknesses in the appointed actuary regime. These were subsequently confirmed by the Penrose Report. These included ambiguity about senior management responsibilities, the potential for conflicts of interest to arise and the exclusion of the valuation of policyholder liabilities from the external audit. To address these weaknesses, we have made significant changes to the role of actuaries in life offices. These improvements were recently endorsed by Sir Derek Morris in his review of the Actuarial Profession.23 The key reform has been abolishing the role of Appointed Actuary at the end of 2004, and replacing it with two new advisory functions: 3.36 the actuarial function (applicable to life insurers); and the with-profits actuary function (only for firms carrying on with-profits business).24
3.34
3.35
Holders of these roles require prior approval from the FSA and are subject to the whistleblowing requirements that previously applied to appointed actuaries. Individuals holding these roles are prohibited from being chairman or chief executive of the firm or from holding any other position that could give rise to a significant conflict of interest including, in the case of the With-Profits Actuary, from being a board member. The actuarial function has a range of specified responsibilities, which include: advising the governing body on the firms ability to meets its policyholder liabilities and the methods and assumptions for the valuation of these liabilities; calculating these liabilities and reporting the results to the governing body; and monitoring the insurers financial position and advising on how much capital is needed to support its business. Complementing this, the with-profits actuary is responsible for advising the governing body on its use of discretion within the with-profits fund as this relates to the fair treatment of policyholders. This is an area where there may be particular tensions between policyholder interests and those of management and any shareholders. The with-profits actuary is required to make a formal report to the governing body at least once a year on key aspect of the firms use of discretion. In an important improvement in transparency, the with-profits actuary is also required to make an annual public report on whether the firm has taken proper account of policyholders interests when exercising discretion.25 Policyholder protection has also been augmented by broadening the scope of the audit to include the valuation of policyholder liabilities as well as the firms assets. Auditors are required to seek actuarial advice on the valuation of liabilities from a reviewing actuary who is independent of the firm, relating both to the regulatory and realistic peaks.
3.37
3.38
3.39
23 24 25
Morris Review of the Actuarial Profession (March 2005). Both of these are controlled functions as defined by the Supervision manual. Please also see paragraph 2.11 on the with-profits actuary.
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3.40
The reviewing actuary is required to give advice on, amongst other things, whether in their opinion the firms methods and assumptions for calculating reserves for liabilities were reasonable; the calculations of reserves have been conducted in line with our requirements; and the capital requirements have been determined in line with our requirements.
Streamlined financial reporting

Regulatory and public reporting
3.41 The publicly available Annual Return for insurers is an important document which we use to help assess the financial condition of insurers and, particularly in the case of long-term business, how they are meeting their obligation to treat customers fairly. It is also heavily used by market analysts (including the rating agencies), consumer organisations, financial commentators and others with an interest in insurance. The current format of the Annual Return has evolved over the years and has become complex and unwieldy, so much so that it is difficult even for expert users to understand. The amendments we are introducing seek to make the returns more useful, as well as reflecting the changes that took effect on 31 December 2004 with the introduction of the Prudential Sourcebook. Specifically, the changes that took effect at end 2004 or are due to take effect from end 2005 will: reduce the number of disclosures that firms have to make by, for example, not requiring repeat disclosure of product terms from life insurers, and fewer business classes for non-life insurance firms; turn the life insurers Valuation Report into a mainly narrative document with a clear structure; amend materiality criteria for reporting business to reduce the burden, in particular for smaller companies; introduce standard classification of business to improve sector analysis; reflect the new realistic balance sheet requirements and capital calculation for withprofits (new forms 18 and 19 and the realistic valuation report); and require disclosures of pay-outs on specimen with-profits policies.
3.42
3.43 3.44
From December 2004, the Directors Certificate will contain statements regarding the premiums for contracts entered into and mathematical reserves. Mindful of the costs of regulation, we have not proposed more far reaching reporting changes at this time due to the possible impact of the International Accounting Standards. As described above, these could affect the balance sheet information reported on the annual return. We will keep under review the information we collect using these returns to ensure it remains appropriate.
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3.45
The revised returns mark an important step in a longer-term programme to make the FSA easier to do business with and to increase regulatory efficiency. We have begun a phased review of reporting requirements for all regulated activities, resulting in the revised insurance return. We have also introduced Mandatory Electronic Reporting (MER) of regulatory data as FSA policy, which is being applied as the revised reporting requirements are being rolled out or later if appropriate. For insurers the revised reporting requirements which took effect at end 2004 or are due to take effect from end 2005 will be submitted using existing methods. We will announce the timetable for the application of MER in the autumn, but giving at least 12 months notice before introducing it.
Regulating Lloyds of London

3.46 As set out in the two previous reports on the Tiner Reforms, we decided to exercise more directly some of our responsibility for the prudential regulation of insurance business conducted at Lloyds, as we extended the risk-based approach to regulating insurance to cover the Lloyds market as well. Our two main areas of focus over the last two years have been to revise the prudential regime applying to Lloyds and to apply our risk assessment framework to the managing agents operating in the Lloyds market, as well as to the Society of Lloyds itself. The aim of these changes was to ensure that our rules and our supervisory effort are directed at where risks are being managed. In developing a new prudential regime for the Lloyds market, we sought to bring Lloyds within the scope of the Prudential Sourcebook, taking into account the markets structure and operation. In particular, we introduced risk-based capital requirements for both the Society and the managing agents, consistent with the approach we took for non-life insurance firms. Final rules were published in December 2004 and the new regime became effective on 1 January 2005 (with some rules having a delayed implementation date of January 2006 in response to consultation). In the coming period we will consult on changes to the Lloyds return to reflect the policy changes. The new prudential regime will help ensure that senior management at both the Society and at managing agents focus effectively on their responsibilities and on the level of capital needed to support the risks of the insurance businesses they manage. The second strand of the changed approach to Lloyds was to apply our risk assessment process directly to the managing agents as well as to the Society. Having completed the first round of risk assessments of the managing agents, we are now re-assessing firms on a risk-based cycle. Assessing the risks at managing agency level, rather than just at a market level, allows us to have a better understanding of them and to put in place remedial action at the most effective level. In carrying out the risk assessments we have identified a number of common risks across the market and have adopted a thematic approach to tackling these, such as managing the underwriting cycle. In addition we also made an important step in improving policyholder protection by bringing Lloyds within the compensation arrangements under the Financial Services Compensation Scheme. In making these changes, we have liaised with the Society to minimise any duplication of effort. The Society has made a number of significant changes to the way it operates. We believe the changes we have made to reflect the division of responsibility better, with the Society managing the risks to the franchise and the FSA carrying out regulatory oversight.
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3.48
3.49
3.50
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4.Smarter regulation of insurance firms

4.1 The creation of a single regulator highlighted significant and untenable differences between the regulation of insurance and of other sectors, both in terms of how regulation was carried out and in terms of resourcing. In our first report on the Tiner Reforms, we recognised that, in addition to reforming the regulatory requirements for the insurance industry, there was a clear need to modernise the way we discharged our regulatory duties. Consequently, the reform programme has focused on delivering four key outcomes: implementing a proactive risk-based regulatory approach, including the deploying resources to areas of greatest risk; consolidating structural changes already made within the FSA to deliver an integrated approach to the regulation of insurance firms, encompassing both prudential and conduct of business issues; developing more effective working relationships with those firms posing a greater risk to achieving our statutory objectives; and delivering insurance supervisors who operate effectively in the new environment.
4.2
The reforms we have implemented to deliver these objectives are described in more detail in the following sections. Collectively, they have radically altered the relationship between the regulator and the regulated, resulting in a more proactive and challenging regulatory approach.
Implementing a proactive risk-based regulatory approach, including the deployment of resources to areas of greatest risk
Better risk identification
4.3 As a risk-based regulator, the early identification and mitigation of emerging risks within the sector is key to our success. We consider risk on both a company-by-company basis but also in terms of those risks that may impact sector-wide. The risk assessment process we apply to all insurers is described in more detail in paragraphs 4.6 4.8. But, to supplement this, we have in place various fora in which to identify and assess sectoral risks. These include sessions with supervisors from across the sector to ensure that we aggregate intelligence from the supervisory front line. The Insurance Risks Group, which was set up as part of the original Tiner Review, also continues to meet on a monthly basis and draws on expertise from across the FSA.
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4.4
Sometimes we choose to explore a particular risk more fully by carrying out some thematic work. Recent examples include claimant fraud, investment risk for general insurers, and credit risk for life insurers. Findings of these pieces of work were shared with the industry and published, either through a Dear CEO letter or in our newsletters. Our thematic work in the coming period will focus on conflicts management in the general insurance industry, contract certainty, good and bad practice in the operation of closed with-profits funds and a review of life offices PPFMs. Case study combating claimant fraud During the course of 2004, we undertook some specific work to establish what insurers are doing to identify and reduce claimant fraud. This is an area of particular importance to us given our statutory objective to reduce financial crime. The incentives for firms to fight fraud are also clear as it costs them and ultimately their policyholders and shareholders money. We decided to undertake the work on a thematic basis to enable us to assess firms efforts to reduce claimant fraud across the general insurance sector. We fed back the results of our work in the December 2004 General Insurance Newsletter. The results had also been trailed in a speech given by Philip Robinson, the FSAs Sector Leader for Financial Crime, in October 2004. Our conclusions from this work suggested that: Senior management in firms need to take tackling fraud seriously, and make it a high enough priority so that the whole organisation recognises the importance of combating fraud. This should be backed up with good management information and internal fraud reporting. Where market solutions such as data sharing arrangements are in place, firms should work together to reduce claimant fraud, reduce the costs to the generality of policyholders and improve the reputation of the industry.
We also supported any initiatives the market is undertaking to reduce financial crime, such as information sharing. We recognised that, in some areas, market solutions alone may not suffice and that we have a role in helping reduce financial crime to deliver benefits for us all. 4.5 We also now provide sector by sector environmental analysis in our Financial Risk Outlook (FRO) which is published annually. It highlights economic, financial, political and social developments that affect our ability to meet our statutory objectives. The document helps put our regulatory work into context by highlighting the risks to which we are responding. Risk assessing insurers 4.6 The risk assessment framework lies at the heart of our risk-based approach to regulation and puts us at the forefront of international regulatory best practice. Individual firms and groups are assessed on the basis of the impact on our statutory objectives if a risk were to materialise, together with an assessment of the probability that it will materialise. On this
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basis, individual firms/groups are then categorised as high, medium-high, medium-low, or low impact. This enables us to target our resources appropriately, weighted towards those that we consider to be higher impact. For high impact firms, we maintain what we term a close and continuous relationship. At the other end of the scale, we maintain routine oversight of the lowest impact firms, encompassing baseline monitoring and thematic work. 4.7 Since 2002, we have regularly assessed insurance firms using this risk-based framework. Typically, a firm will be risk-assessed every two years, with an interim assessment in between. This is the first time that insurance firms risk profiles have been viewed holistically by the regulator and marks a significant departure from the days when insurance regulation was dominated by the analysis of regulatory returns. Over the last year, we have been upgrading the risk assessment framework to improve the process and to take account of our new responsibilities for insurance and mortgage regulation. The proposals will be tested and implemented over the next 18 months. Taken together, they should achieve: greater proportionality and consistency in response to risks applying our resources where they will make the most difference; better use of information about emerging risks across different sectors of the financial services industry and their impact on individual firms; better communication with firms on our assessment of them; improved skills and knowledge of our supervisory staff; and greater integration of firm-specific and thematic work.
4.8
Effective use of regulatory tools

4.9 At the time of our second report on the Tiner Reforms, the risk assessment process was still in its infancy, and since then we have sought to make greater use of the range of regulatory tools, including enhanced relationship management, the use of skilled persons reports under s.166 of FSMA and the involvement of our insurance specialists in our Risk Review Department (RRD). To ensure our relationship managers were able to focus on delivering the changes to our supervisory approach, we decided to create separate teams dealing solely with regulatory transactions (such as changes of control, waivers and transfers of business). These are now carried out by specialist teams who are part of our Regulatory Services Business Unit. This approach has been widely adopted across the FSA. Skilled persons reports examine specific aspects of a firms operations, systems or controls and are used, for example, to identify areas where improvements may be required, to check that remedial work has been completed, or to help us assess the position following a major change, such as a merger or reorganisation. Since 2001, we have commissioned 12 skilled persons reports on insurance firms, on issues ranging from the fair treatment of policyholders through to the adequacy of underwriting procedures.
4.10
4.11
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4.12
Established in 2001, RRD contains a number of specialists in market, credit, operational and insurance risk and is a key contributor to the FSAs understanding of complex risks in the financial services industry. Specialists from RRD have attended over 100 risk assessment or thematic visits, where they work alongside the supervisors and make recommendations for improvements within the firm. These recommendations are then discussed with the firm and appropriate action agreed. We also have a wide range of regulatory enforcement powers available to us. Wherever possible, we aim to resolve breaches of the rules and requirements without having to resort to disciplinary action, but in more serious cases this may be unavoidable. Since 2001, we have instituted enforcement action against eight insurance firms and seven individuals over a range of issues from mortgage endowment mis-selling through misleading the regulator. Case study enhanced use of regulatory tools Following concerns about the level of capital and the quality of controls in a general insurance company, we restricted the level of premiums the company could write until it secured additional capital: none was forthcoming, so we decided to prevent it from writing any further business. The firm chose to go into run-off. This was the first time we had intervened with a general insurance company in this way, using our new powers and our enhanced relationship management skills. Our proactive stance prevented the firm becoming insolvent at the time and, we believe, had a positive impact on market confidence and customer protection.
4.13
Consolidating structural changes already made within the FSA to deliver an integrated approach to the regulation of insurance firms, encompassing both prudential and conduct of business issues
Reorganisation, including sector teams
4.14 In November 2003, we announced the FSA would undergo a management reorganisation which took effect in April 2004. The new management structure was designed to put us in the best possible position to deliver our high-level aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve our business capability and effectiveness. As such, we now have three strategic business units that focus on retail markets, wholesale and institutional markets and regulatory services respectively. Supervision of insurance companies is carried out within both the Retail Markets and Wholesale and Institutional Markets Business Units, as illustrated below:
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RETAIL MARKETS BUSINESS UNIT
WHOLESALE & INSTITUTIONAL MARKETS BUSINESS UNIT
Major Retail Groups Division

high impact life and general insurers and intermediaries that are part of a group
Retail Firms Division

medium impact life insurers, retail general insurers and intermediaries
Small Firms Division
Wholesale Firms Division

Lloyds of London, general insurers, reinsurers and wholesale intermediaries
low impact life insurers, retail general insurers and intermediaries
4.15 4.16
Each of the supervisory divisions carries out both conduct of business and prudential regulation, underscoring the importance we attach to integrating the two regulatory disciplines. In addition to the four supervisory areas, a range of staff work on insurance-related activities in other divisions within the FSA. These include: regulatory transactions; retail and wholesale policy development; retail themes; authorisation; enforcement; and general counsel. Given this wide spread of staff, communication and coordination is critical. In April 2004, sector teams for each of the main financial sectors were established.26 Led by David Strachan as Sector Leader for insurance, part of the role of the insurance sector team is to facilitate greater co-ordination and communication within the FSA on all insurancerelated issues. In addition to this, the sector team has established a constructive dialogue with various stakeholders, including trade associations, professional bodies and the rating agencies. The team also hosts seminars and conferences and publishes quarterly newsletters to help improve the flow of communication between ourselves and the industry.
Integration of actuarial advice

4.17 Under the predecessor regulatory bodies, the Government Actuarys Department (GAD) provided actuarial advice to the supervisors of insurance firms. In 2001 staff from GAD were transferred to the FSA enabling greater knowledge sharing, timely access to technical expertise and quicker identification of potential concerns about the industry. Integration with the supervisors of both life and non life insurance firms has also enabled
26
These include: asset management; banking; business continuity and financial stability; capital markets; consumers; financial crime; and retail intermediaries.
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actuaries to become more closely involved in regulatory work. This has been particularly important with the introduction of the new capital requirements and ICAS. We have also expanded our actuarial teams to ensure we have sufficient actuarial resource to support the new regime.
Relationship with overseas and other regulators

4.18 In recognition of the growth of global insurance groups and the importance of the London international insurance market, we have taken steps to increase our contribution to international insurance issues. Our efforts here have focused on two main areas: first, the need to build effective and open working relationships with overseas regulators and second, to make a proactive contribution to the international policy agenda. This has positioned us as one of the leading world authorities on insurance issues, consistent with our aim to be a world class regulator and in line with our reputation in the banking and securities sectors. To ensure we can share information with relevant regulators about groups or insurers in which we have a common interest, we have now entered into Memoranda of Understanding with seven overseas regulators and either attended or hosted college of regulator meetings in respect of European insurance groups, as required by the Insurance Groups Directive. We have visited regulators in a number of key jurisdictions such as Bermuda, the USA, Australia, Ireland, Switzerland and Germany which has enabled us to cement relationships, increase dialogue at a working level and, in a number of difficult cases, secure good regulatory outcomes. Our contribution to the international policy agenda has been significant. At the European level, John Tiner is the FSAs member on the Committee of European Insurance and Occupational Pension Supervisors (CEIOPS) and also sits on its Managing Board. We are chairing the Solvency 2 working group dealing with Pillar 1 issues and actively participating in other Solvency 2 working groups. We are also contributing to the CEIOPS work on financial stability, intermediaries and insurance groups supervision. Internationally, we have seven staff involved in the International Association of Insurance Supervisors committees and working groups and we chair the Reinsurance Transparency Group which produced its first report in December 2004.We have also provided input to groups such as the Joint Forum, the Financial Stability Forum and the G30 review of Reinsurance.
4.19
4.20
Developing more effective working relationships with those firms posing a greater risk to achieving our statutory objectives
Relationship with higher impact firms
4.21 We have what we call a close and continuous relationship with firms that are categorised as high impact to maintain knowledge of the firm, its strategy and emerging business risks. This also involves regular dialogue with group management and control functions, such as compliance, risk management and internal audit, to assess the extent to which we can place reliance on them as part of our wider risk management programme.
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Extension of group supervision

4.22 In the second report on the Tiner Reforms, we stated our intention to extend our group supervision model, under which all the entities within a particular group are supervised by one team of supervisors with different functional skills, to other parts of the FSA. This was based on our experience we had in supervising groups within the Major Financial Groups Division (prior to the FSAs reorganisation). This approach is now firmly embedded within the Retail Markets and Wholesale and Institutional Markets Business Units and has been instrumental in helping assess risks within these groups.
Greater focus on senior management responsibility

4.23 Senior management responsibility is a cornerstone of the new regulatory approach and is reflected in both the new conduct of business and prudential requirements. As such we pay particularly close attention to the governance arrangements of firms for example, the make-up of their Boards and the balance of skills and experience of non-executive Directors.27 We have taken action to reinforce the role of non-executive members of Boards in line with current corporate governance standards. Effective corporate governance in authorised insurance firms is critical to our statutory objectives of maintaining market confidence and consumer protection and so we welcomed the recent recommendations of the Myners Report that seek to strengthen governance for mutuals.28 In particular, we support the aims of the recommended Combined Code for mutuals as it will provide a useful benchmark against which we will be able to measure governance standards in mutual life offices. We expect all regulated firms, regardless of their impact, to communicate openly with us.29 This means ensuring that we are kept informed when there is a risk that a firm may breach any of the regulatory requirements, or indeed when such a breach has taken place. We also expect to be kept informed of other significant events or developments that may have regulatory implications. In broad terms, we are satisfied that most firms have met this expectation since 2001 through, for example, giving us advance notice of any significant corporate developments and announcements. Where this has not been the case, we have taken action. Case study: improvements to corporate governance At the core of promoting efficient, orderly and fair markets is sound corporate governance. This not only encompasses the skills and capability of a firms senior executives, but that of the composition and quality of its Board. We used our powers under section 166 of FSMA to review the high level controls of the Board of a life insurance company. This highlighted deficiencies in the firms corporate governance structure and resulted in agreement from the firms Board and senior management to strengthen the composition of the Board by appointing independent non-executive directors to improve the Boards effectiveness and the balance between executive and non-executive directors.
27 28 29 Poor governance featured strongly in the London Working Groups report on the Prudential Supervision of Insurance Undertakings (December 2002), in which the group examined the causes of recent failures or near misses in the insurance industry. Myners Review of the Governance of Life Mutuals (December 2004). This is a key requirement of Principle 11 of the FSAs Principles for Business: a firm must deal with its regulators in an open and cooperative way, and must disclose to the FSA appropriately anything relating to the firm of which the FSA would reasonably expect notice.
4.24
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Dialogue with trade associations and other industry stakeholders

4.25 Since 2001, we have worked hard to develop and cement our relationships with the sectors trade associations and professional bodies, meeting regularly with the Association of British Insurers; the Association of Mutual Insurers; the Association of Friendly Societies; the International Underwriting Association; the London Market Brokers Committee; Lloyds Market Association; the British Insurance Brokers Association; the Association of Insurance and Risk Managers; and the Actuarial Profession. We have also sought to engage with the various consumer bodies. Founded on a no surprises basis these relationships are extremely valuable to us and we acknowledge the significant contribution that these bodies have made in the policy development phase of the reform programme. We look forward to continuing to work closely with them as the reform programme becomes an operational reality.
Insurance supervisors who operate effectively in the new environment

Core curriculum of training
4.26 The introduction of a new regulatory regime brings challenges for us as well as the industry. Most importantly, we need to ensure that we fully understand the individual elements of the new regime and how to apply these in our supervision of insurers. To do this, staff need to be equipped with the appropriate skills, expertise and tools. Since 2001, we have provided a comprehensive programme of training and development for all our staff, encompassing both technical knowledge and management development training. Over the past year, we have developed this to incorporate training modules on the new aspects of the regime, giving particular focus to the new capital requirements and the ICAS framework. Using a web-based programme, all insurance supervisors are now able to target their training according to our core curriculum. This system also allows us to extract management information data so we can plan our training more efficiently. As well as classroom-based training, we also seek to augment our collective skills set through industry secondments (both in the UK and internationally), relevant industry training, workplace shadowing and by attending conferences. We recognise industry concerns that have been voiced over the skills and experience of our staff and will be doing more to ensure that we have the correct collective skills mix.
4.27
4.28
Staffing
4.29 In the original report on the Tiner Reforms, we committed to increasing the number of staff employed in insurance regulation. This was largely to redress the significant imbalance of supervisory resource between insurance and other regulated sectors. At the time, taking account of non-supervisory insurance staff, there was a total of 188 staff working on insurance. We committed to increasing this, by recruiting 35 insurance
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specialists. By the time we published the progress report, we had delivered on this commitment. Since then, reflecting our increased responsibilities for general insurance regulation, our numbers have increased again to 303. This comprises the following:
Area Major Retail Groups Division (supervision) Retail Firms Division (supervision) Wholesale Firms Division (supervision) Small Firms Division (supervision) Actuaries (life and non-life) Non-supervisory (authorisation; policy; RRD; enforcement etc) Total
Number of staff 55 41 37 49 25 9630 303
4.30
We acknowledge industry concerns in relation to supervisory staff turnover. Sometimes, experienced staff choose to leave the FSA to develop their careers further by returning to industry to gain or develop commercial experience. Although we are always reluctant to lose good staff, we recognise the benefits this can bring to industry in terms of raising awareness of supervisory standards and expectations across the board. Over half of our insurance supervisors and actuaries have insurance related backgrounds and we continue to hire good calibre people, both from the industry and those with other backgrounds. In addition, we also employ former senior industry executives to provide advice and counsel to other regulatory staff. These grey panthers make an important contribution in sharing their own wealth of industry experience.
4.31
30
This includes an additional seven staff that deal with insurance-related regulatory transactions.
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Annex: relevant FSA publications
Consultation Papers
CP04/14: Treating with-profits policyholders fairly (August 2004) CP04/11: A basic advice regime for the sale of stakeholder products (June 2004) CP04/9: Fee issues arising from the regulation of mortgage business and general insurance broking (May 2004) CP04/7: Lloyd's: integrating prudential requirements and changes to auditing and actuarial requirements (April 2004) CP04/4: Mortgage firms and insurance intermediaries funding of the Ombudsman and Compensation Schemes (March 2004) CP04/3: Reforming polarisation: a menu for being open with consumers (February 2004) CP207: Treating with-profits policyholders fairly (December 2003) CP204: Financial Groups (October 2003) CP202: Insurance regulatory reporting: changes to the publicly available annual return for insurers (September 2003) CP197: Reporting requirements for mortgage, insurance and investment firms (September 2003) CP195: Enhanced capital requirements and individual capital assessments for life insurers (August 2003) CP191: Miscellaneous amendments to the Handbook (No.9) (July 2003) CP190: Enhanced capital requirements and individual capital assessments for non-life insurers (July 2003) CP187: Insurance selling and administration and other miscellaneous amendments (June 2003) CP181: the Interim Prudential Sourcebook for Insurers and Friendly Societies (April 2003) CP178: Review of prudential regulation of the Lloyd's Market (April 2003) CP177: Lloyd's policyholders: review of compensation arrangements (April 2003) CP174: Prudential and other requirements for mortgage firms and insurance intermediaries (March 2003)
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CP170: Informing consumers: product disclosure at the point of sale (February 2003) CP166: Reforming polarisation: removing the barriers to choice (January 2003) CP167: With-profits governance, the role of actuaries in life insurers, and certification of insurance returns (January 2003) CP160: Insurance selling and administration (December 2002) CP159: Appointed Representatives: extending the current regime (December 2002) CP144: A new regulatory approach to insurance firms use of financial engineering (July 2002) CP140: The Interim Prudential Sourcebook for insurers and friendly societies and the Lloyd's Sourcebook: Guidance on systems and controls (July 2002)
Issues Papers
Issues Paper 5: Governance of with-profits funds and the future role of the appointed actuary (March 2002) Issues Paper 4: Discretion and fairness in with-profits policies (February 2002) Issues Paper 3: Disclosure to consumers (January 2002) Issues Paper 2: Regulatory reporting (November 2001) Issues Paper 1: Process for dealing with attribution of inherited estates (October 2001)
Responses
PS05/2: Insurance regulatory reporting: changes to the publicly available annual returns for insurers (February 2005) PS05/1: Treating with-profits policyholder fairly (January 2005) PS04/28: Lloyd's: integrated prudential requirements and changes to actuarial and audit requirements (December 2004) PS04/27: Reforming polarisation: implementation (November 2004) PS04/25: Amendments to switch on the Integrated Prudential Sourcebook as it applies to insurers (November 2004) PS04/24: Insurance Groups supplementary feedback to CP 204 (November 2004) PS04/22: A basic regime for the sale of stakeholder products (November 2004) PS04/20: Financial Groups feedback on CP 204 (July 2004) PS04/19: The identification of contracts of insurance (July 2004) PS04/16: Integrated Prudential Sourcebook for insurers (July 2004)
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PS04/1: Insurance selling and administration and other miscellaneous amendments (January 2003) PS177: Lloyd's policyholders: review of compensation arrangements (October 2003) PS: Implementation of the Solvency 1 Directives into the Interim Prudential Sourcebooks for Insurance and Friendly Societies (September 2003) PS: Prudential and other requirements for mortgage firms and insurance intermediaries (September 2003) PS: With-profits governance and the role of actuaries in life insurers (June 2003) PS: A new regulatory approach to insurance firms use of financial engineering proposed changes to the regulatory returns for life insurers (December 2002) PS: The Interim Prudential Sourcebook for Insurers and Friendly Societies and the Lloyd's Sourcebook: guidance on systems and controls (December 2002) Feedback Statement on the with-profits review (May 2002) Feedback Statement: Future role of actuaries in the governance of life insurers (May 2002) Public Submissions to the with-profits review
Discussion papers
DP20: Issues for with-profits business arising from the Sandler Review (February 2003) DP19: Options for regulating the sale of simplified investment products (January 2003) With-profits Review: Open Meeting Discussion Paper (May 2001) With-profits Review: Summary of open meeting (July 2001)
Occasional papers
OP20: Managing risk: practical lessons from recent 'failures' of EU insurers (January 2003)
Other
Insurance Sector Briefing: the regulation of closed with-profits funds (September 2004) Treating Customers Fairly progress and next steps (July 2004) Review of UK insurers' risk management practices (October 2003)
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The Financial Services Authority 25 The North Colonnade Canary Wharf London E14 5HS Telephone: +44 (0)20 7066 1000 Fax: +44 (0)20 7066 1099 Website: http://www.fsa.gov.uk
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Tiner Insurance Report

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Financial Services Authority

Insurance Sector Briefing:

Annex: relevant FSA Publications

Insurance Sector Briefing: Delivering the Tiner Insurance Reforms

Insurance Sector Briefing: Delivering the Tiner Insurance Reforms

John Tiner April 2005

Insurance Sector Briefing: Delivering the Tiner Insurance Reforms

1. Introduction and executive summary

Insurance Sector Briefing: Delivering the Tiner Insurance Reforms

A fair deal for consumers

Soundly managed insurance firms with adequate financial resources

Insurance Sector Briefing: Delivering the Tiner Insurance Reforms

Smarter regulation of insurance firms

Cost benefit analysis and consultation

Insurance Sector Briefing: Delivering the Tiner Insurance Reforms

Insurance Sector Briefing: Delivering the Tiner Insurance Reforms

Soundly managed insurance firms with adequate financial resources

'One size fits all' approach to capital adequacy standards.

Insurance Sector Briefing: Delivering the Tiner Insurance Reforms

Smarter regulation of insurance firms

No formal mechanism for allocating resources according to risk.

Insurance Sector Briefing: Delivering the Tiner Insurance Reforms

2.A fair deal for consumers

Insurance Sector Briefing: Delivering the Tiner Insurance Reforms

Insurance Sector Briefing: Delivering the Tiner Insurance Reforms

Insurance Sector Briefing: Delivering the Tiner Insurance Reforms

Insurance Sector Briefing: Delivering the Tiner Insurance Reforms

Consumers make informed decisions

Insurance Sector Briefing: Delivering the Tiner Insurance Reforms

Insurance Sector Briefing: Delivering the Tiner Insurance Reforms

Liberalised framework for financial advice

Insurance Sector Briefing: Delivering the Tiner Insurance Reforms

A new conduct of business regime for general insurers

Insurance Sector Briefing: Delivering the Tiner Insurance Reforms

3.Soundly managed insurance firms with adequate financial resources

Adequate financial resources

Insurance Sector Briefing: Delivering the Tiner Insurance Reforms

Insurance Sector Briefing: Delivering the Tiner Insurance Reforms

Insurance Sector Briefing: Delivering the Tiner Insurance Reforms

European directives and International Accounting Standards

Insurance Sector Briefing: Delivering the Tiner Insurance Reforms

Insurance Sector Briefing: Delivering the Tiner Insurance Reforms

Systems and controls

Insurance Sector Briefing: Delivering the Tiner Insurance Reforms

Insurance Sector Briefing: Delivering the Tiner Insurance Reforms

The role of actuaries in life offices

Insurance Sector Briefing: Delivering the Tiner Insurance Reforms

Streamlined financial reporting

Insurance Sector Briefing: Delivering the Tiner Insurance Reforms

Regulating Lloyds of London

Insurance Sector Briefing: Delivering the Tiner Insurance Reforms

4.Smarter regulation of insurance firms

Insurance Sector Briefing: Delivering the Tiner Insurance Reforms

Insurance Sector Briefing: Delivering the Tiner Insurance Reforms

Effective use of regulatory tools

Insurance Sector Briefing: Delivering the Tiner Insurance Reforms

Insurance Sector Briefing: Delivering the Tiner Insurance Reforms

RETAIL MARKETS BUSINESS UNIT

WHOLESALE & INSTITUTIONAL MARKETS BUSINESS UNIT

Major Retail Groups Division

Retail Firms Division

Small Firms Division

Wholesale Firms Division