FSA Calls On Insurers To Improve Risk Management Frameworks

by Robin Pilgrim, LawAndTax-News.com, London

04 December 2006

The UK's Financial Services Authority (FSA) announced last week that the insurance industry’s management of risk has progressed substantially over recent years, but that firms still need to further improve the effectiveness of their risk management frameworks.

The FSA conducted a review which looked at how firms are developing their risk management techniques in the face of a changing socio-economic environment, marked by evolving risks ranging from more volatile investment conditions and increases in longevity, through to terrorism threats and climate change.

The review's findings were published on Thursday in an FSA Insurance Sector Briefing, which also looked at the impact of the introduction of Individual Capital Adequacy Standards (ICAS) in bringing about improvements in risk management by insurers.

Sarah Wilson, FSA Insurance Sector Leader explained that:

"Since our previous review of insurers’ risk management practices in 2003, there has been substantial progress. Our new risk-based capital adequacy regime under the ICAS framework may have acted as one catalyst for change for some firms but should not be viewed as a substitute for good risk management practices. Instead we would expect ICAS to be used as one of many tools in an integrated approach to risk and capital management."

"We believe that, whilst ICAS has placed the UK industry in good stead for the implementation of the new EU risk-based capital adequacy regime, firms must have in place fully integrated risk and capital management frameworks across their business activities to benefit fully from the implementation of Solvency II."

"We hope firms will find useful pointers from the outcome of the Review and will consider the questions we have posed in assessing and developing their risk management practices."

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