Published by Vivienne Maclure on
Here we focus on the guidelines surrounding the forward-looking assessment of risks (FLAOR), outlining what these mean for insurers and how we can help
The short answer is all insurers are impacted, although additional requirements apply to firms captured by the thresholds set by EIOPA, who were notified prior to 31 January.
Firms are expected to devote time to designing, compiling and trialling their FLAOR during the preparatory period and submit annual assessments to the PRA in 2014 and 2015.
The development phase is expect to be a staggered approach that allows firms to demonstrate:
PRA feedback in respect of the first assessment;
experience gained during 2014;
prevailing market conditions;
changes to the risk profile; and
Consistent with previous communications from the PRA, it has said that it will not prescribe the format of the FLAOR but it expects firms to focus on:
Record of the FLAOR, providing a detailed audit trail and explanation of how the FLAOR results were produced to enable a third party to evaluate the assessment undertaken.
Internal report, describing the FLAOR outcome, summarising the process and methodology, recording the main findings and outlining subsequent implications for the business. This report should become a valuable form of information that firms use in their strategic decision-making.
The main form of submission to the PRA will be via a Supervisory report, describing the FLAOR outcome. The internal report, approved by the Board, can be used if it contains sufficient detail. The supervisory report must be submitted to the PRA within two weeks of the FLAOR being approved by the Board.
The PRA notes that it is also considering providing firms with a summary sheet, with the aim of capturing information in a consistent way and to facilitate its review, but provides no further information in respect of this at this stage.
It is down to firms to decide when they wish to carry out their FLAOR and they should inform the PRA in plenty of time when they plan to submit their results.
Active involvement by the Board is expected during the design, implementation, documentation and sign-off of the FLAOR. It is important that sufficient involvement can de demonstrated, including allowing adequate time for discussion at Board meetings.
Whilst the PRA expects a number of things from firms there are also some key points that are not expected, at least not from the outset:
The PRA’s duty is to ensure that firms meet the specified outcomes of EIOPA’s Guidelines. Full compliance with Solvency II during the transitional phase is not a requirement, and so the PRA is not expected to take supervisory action in respect of non-compliance, specifically with Pillar 1 requirements.
Firms should be establishing and trialling their FLAOR processes and procedures and producing the accompanying documentation. Preparations should be set to meet the requirement of carrying out and submitting the results of their first FLAOR to the PRA in 2014 then to make any necessary revisions before submitting the results of their second FLAOR in 2015.