On 17 May 2018, the PRA published a policy statement, PS10/18, which gives feedback to responses to its November 2017 consultation paper, CP23/17, containing proposals for a draft supervisory statement on effective financial management and planning by insurance firms and groups. The policy statement also contains the final version of the supervisory statement, SS4/18, which takes effect on the day of publication, that is, 17 May 2018.

The PRA received seven responses to CP23/17 and says that these responses generally welcomed the clarity the PRA expressed regarding the importance of a robust risk appetite framework in the management and monitoring of key business activities. Respondents also agreed that many of the proposals set out in the proposed supervisory statement were in line with the current financial planning and management of firms, and would reinforce current good practices.

The PRA has made several changes to the supervisory statement consulted on to reflect comments made in the responses. These are listed in paragraph 1.13 of the policy statement and full details are given in chapter 2. They include:

  • enabling more proportionality to be applied by insurers in meeting the expectations in the supervisory statement;
  • including some specific wording to explain how the expectations in the supervisory statement may be applied by Lloyd's and managing agents;
  • noting that most insurers have a policy whereby they review their risk appetite each year in the context of their risk profile, or following some major external event;
  • the addition of a paragraph on consistency of an insurer's risk appetite with its external communications;
  • noting that management actions, and decisions on capital distributions (including dividends), that are taken in actual stress situations, might differ from those developed from hypothetical scenarios.