It was the turn of financial watchdogs to provide evidence at the House of Lords on Tuesday as part of the industry and regulators committee’s inquiry into commercial insurance and reinsurance market regulation in the UK.
Among those who took part was Prudential Regulation Authority (PRA) chief executive Sam Woods (pictured), whose statement included a response to assertions made by Hiscox non-executive chair Robert Childs during a previous session in Parliament.
Last week, Childs pointed to a lack of flexibility and agility in UK insurance regulation. More on that here.
Yesterday, in Parliament, Woods said: “The supervision of Hiscox is carried out within a team of three which has to cover a number of firms. We had 32 (virtual) meetings with Hiscox last year, so roughly one every other week. To me that seems appropriate – it’s a big company, it’s an important company.”
The CEO also cited broader operational details, to give a sense of how the PRA works.
“I think the easiest way to describe it is we’ve got a frontline supervisory division for the London Market which has about 40 people working within it. We then have another division of general insurance actuaries who support that work. There’s about 35 of those, but probably about half their time is spent on the London Market.
“To put that figure in context, the broad definition of the London Market is gross written premium annually of about £110 billion. The levy that we impose on the sector, which obviously covers the cost of all those people and the overheads, is, at the moment, £12.7 million. So that is 0.012% of the amount of premium that’s coming in.”
He added: “Another way to contextualise it is to compare it to what we do elsewhere. Our very largest supervision teams in the PRA are for our biggest banks. And for our biggest banks we have a team of about 20 on a single bank. You can compare that to the 40 that we have in the frontline supervision team for the London Market.”
As part of the inquiry, Woods was asked about the steps, if any, that the PRA has taken in response to industry frustration at the supposed granularity and high level of bureaucracy imposed by regulators.
“There is a consistently low score for how well firms think we coordinate with the FCA (Financial Conduct Authority), so we have put extra attention to that recently,” stated Woods, who was referring to findings of the PRA’s annual survey aimed at getting feedback from stakeholders.
“We’ve come up with this thing called a ‘regulatory initiatives grid’, where we and the other main regulators who might touch financial services are now putting down ‘here’s everything that we are up to’. And even the process of doing that, in creating that picture, allows us to look at whether it makes sense. That’s one concrete thing we’ve done lately.”
Also present during the evidence session was PRA executive director of risk, operations, and general insurance Anna Sweeney, who talked about the ways they get information from companies as part of the oversight process.
“We ask for information in two different ways,” she noted. “One is the formal regulatory returns, and we have already taken steps to take out about 15% of that reporting… The second type is the ad hoc request from the supervisors. On those sort of informal requests, we try very hard to keep them proportionate. We try to keep a balance, and we are always happy to have an individual discussion with firms about the smartest way to get the information that we want.”
Sweeney also declared: “The important thing to say is that the heart of our supervisory approach is to think about the business models and the markets within which the firms are operating and then think about the risks that they pose.
“Clearly, the business models and the risks that apply in the London Market are very different from those that apply to a retail general insurer, let alone a life insurer or a bank. So, we do focus on very different issues, and we think about our approach in that context.”
The Financial Conduct Authority, meanwhile, was represented at the session by FCA executive director of consumers and competition Sheldon Mills and director of general insurance and conduct specialists Matt Brewis.