PRA outlines strategy to boost UK insurance competitiveness & attract investment

As the PRA marks the first anniversary of its Secondary Competitiveness and Growth Objective (SCGO), the regulator’s Director of Insurance Supervision, Shoib Khan, has highlighted a series of new initiatives designed to maintain trust in the prudential framework while facilitating the UK’s economic growth through the insurance sector.

Introduced last year by Parliament, the SCGO sits alongside the PRA’s existing secondary competition objective and requires it to discharge its general functions to advance its primary objectives, in a way that facilitates international competitiveness and growth of the UK economy.

In a speech given at the Bank of America Securities Annual Financials CEO Conference, Khan observed that the PRA aspires to facilitate the UK’s international competitiveness and advance the SCGO through three regulatory foundations:

Maintaining trust in the UK prudential framework; adopting effective regulatory processes and engagement; and taking a responsive approach to UK risks, opportunities, and innovation.

“These, in turn, can enable insurers to allocate capital more efficiently, compete in international markets; and attract investment to the UK,” he explained.

According to Khan, the SCGO codifies the PRA’s approach to supporting the UK’s status as a global insurance market.

“We think that when you transact in the UK, our robust legal and regulatory framework mean that policyholders should be confident that they can enforce their claims, and that insurers will have the means to pay. And that’s why the SCGO supplements our primary objectives of safety and soundness and policyholder protection,” Khan said.

He continued, “It’s worth noting that the SCGO applies when we exercise our general functions – in other words our policymaking and supervisory approach.

“It does not apply to individual firm decisions. That being said, as we evolve our approach and respond to innovation, we will take into account what firms tell us about how we are impacting competitiveness and growth.”

Whilst stating that innovation must be industry-led, Khan also noted that the PRA is seeking to create a regulatory environment that supports innovation and is responsive to the specifics of the UK market.

This of course includes the London Market, which reportedly makes a crucial contribution to the UK’s position as a global insurance centre.

“The London Market is a leading place to underwrite large and complex risks internationally. It remains the dominant market for specialty insurance classes capturing over 40% of global market,” Khan said.

He went on, “One such example is the evolution of the UK cyber insurance market as the largest cyber market in Europe. It benefits from a deep expertise in cybersecurity and underwriting which has made it a natural hub for cyber risk taking.

“The PRA recognises the growing importance of this activity given evolving cyber threats at a time of increased geopolitical uncertainty such that our supervisory expectations around, for example, capital and exposure risk management, have allowed firms to develop these as the market grows.”

Sheila Cameron, CEO of the Lloyd’s Market Association (LMA), commented on Khan’s speech, “The LMA welcomes today’s announcement by Shoib Khan about how the PRA will work more effectively with the Society of Lloyd’s, removing the duplication in supervisory activity and thereby increasing competitiveness and reducing costs. We also welcome the intent to speed up both the authorisation and cat bond approval processes.

“The Society of Lloyd’s has done a huge amount of work in partnership with the market to develop the Principles for Business Oversight framework, which is now deeply embedded with Managing Agents. We believe this framework is robust and we are pleased to see this vote of confidence in the framework from the PRA.

“We would also like to thank the LMG for the work they did to ensure the secondary growth and competitiveness objective was included in last year’s Financial Services and Markets Act.”

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