The FSA has taken the opportunity to publish a sector briefing on insurers’ risk management practices. Although the last few years have seen a number of significant improvements in risk management methods, the current market problems make accurate risk management and capital modelling essential.

In this briefing the FSA emphasises that firms must ensure that their risk and capital assessments become integrated into the overall decision making processes and systems and controls of the business. The briefing is aimed at senior managers who should have a clear appreciation of the risks their businesses face and what actions the regulator will expect them to take.

Recent market events have made it essential that senior managers pay attention to risk and capital management. The FSA states in the briefing that it can see good examples of how ICAS models can play an important role in improving insurers’ understanding and management of risk as part of their wider governance obligations. Managers should examine how risk and capital models are used and ensure that the results are kept up-to-date. The FSA states that it will expect to see firms’ ICA results being regularly reported to the relevant senior management committees and the results systematically incorporated into risk management and decision making processes.

Insurers should continue to develop how they use models and should begin to make preparations towards the transition over to the Solvency 2 ORSA - the Own Risk and Solvency Assessment. The briefing also considers managing the risks of ABS, stress testing, the valuation of discount rates, credit risk and longevity risk.

View Insurance sector briefing: Risk and capital management update, (PDF 963KB), 11 September 2008