PRA 2024 insurance supervision priorities published

The Prudential Regulation Authority today set out its 2024 insurance supervision priorities in a letter to chief executives of PRA‑regulated insurers, increasing its focus on liquidity, resilience and risk management. The priorities span new liquidity reporting, operational resilience deadlines, Solvency UK implementation and targeted work on cyber, claims inflation and general insurance modelling.

The letter applies to PRA‑regulated insurance firms in 2024 and frames the agenda around lessons from recent market stresses and structural reforms to Solvency UK. It also references the Bank of England’s intention to introduce a system‑wide stress exercise for non‑bank financial institutions, explicitly including insurers.

Liquidity risk and system‑wide stress testing

The PRA states that recent market events have driven liquidity strains for some insurers and exposed gaps in firms’ liquidity risk frameworks. During these episodes, the PRA sought timely and accurate data on insurers’ positions and exposures and now wants to collect this information more consistently ahead of future stress events.

To address this, the PRA says that during 2024 it will work with relevant stakeholders to develop liquidity reporting requirements for insurers, aimed at providing consistent and timely information on liquidity risk exposures. In parallel, the priorities document notes that the Bank of England has its intention to develop a new system‑wide stress exercise for non‑bank financial institutions, including insurers.

Operational resilience and ease of exit

On operational resilience, the PRA states that firms must be able to remain within impact tolerances for all important business services by March 2025. The letter makes clear that these operational resilience expectations apply to all firms, with proportionality in how they are applied.

The priorities also introduce a new strand on “ease of exit”, with the PRA stating that it will consult in early 2024 on requirements for insurers to be able to exit the market safely and in an orderly manner. The consultation is framed as part of ensuring that failure can be managed without disorderly impacts on policyholders or the wider system.

Solvency UK, matching adjustment and internal models

External commentary from 4most describes the forthcoming Solvency UK reforms as a major activity for the PRA in 2024, with final policy statements due and insurers expected to complete their adoption by the end of the year. The same commentary states that the PRA intends to provide further clarity on the updated approach to both matching adjustment and internal model review processes as part of these reforms.

4most also reports that the PRA is gathering data on insurers’ strategic investment plans so it can prepare for potential new matching adjustment applications once Solvency UK changes are in place. This data‑gathering is described as forward‑looking, aimed at understanding how firms may adjust investment strategies under the revised regime.

General insurance: claims inflation and model drift

For general insurance, the PRA’s 2024 priorities state that it will monitor claims inflation through regulatory data collection and its usual supervisory meetings into 2024. The document adds that further targeted actions on claims inflation will be considered if necessary, and specifies that this strand applies to all general insurance firms.

The priorities also identify “model drift” in general insurance as a focus area, with the PRA stating that it will follow up with firms identified as exhibiting model drift using targeted supervisory tools and actions where appropriate. Separately, the PRA says it will assess firms’ compliance with Supervisory Statement SS3/19 through supervisory engagement, firm‑specific deep dives and thematic work.

Cyber insurance focus

According to DAC Beachcroft, the PRA’s 2024 priorities letter again singles out cyber insurance for specific mention, noting that the class has continued to grow against a backdrop of evolving cyber‑related threats and geopolitical uncertainty. The same article states that the PRA’s work on cyber insurance in 2024 will focus on ensuring that firms’ capital and exposure management capabilities are commensurate with growth in exposure and the inherent volatility of this risk.

The PRA’s priorities and associated Solvency UK timetable mean that 2024 is framed as a year of both structural reform and intensified supervisory scrutiny, with key operational resilience milestones landing by March 2025. Further detail will depend on the PRA’s promised consultations and policy statements, for which specific publication dates beyond “early 2024” are not set out in the available material.

--- Sources: https://www.bankofengland.co.uk/prudential-regulation/letter/2024 https://www.bankofengland.co.uk/prudential-regulation/letter/2024/insurance-supervision-2024-priorities https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/letter/2024/insurance-supervision-2024-priorities.pdf