How To Manage A Senior Insurance Manager

Transcription

1 Senior insurance managers regime The New Individual Accountability Regime II January 2015

2 Senior insurer managers regime In scope Senior managers All firms within Solvency II Insurers ISPVs Lloyd s Managing agents Branches of overseas firms 2

3 Implementing Solvency II A key part of transposition Appropriate and transparent allocation of oversight and management responsibilities is central to good governance so from 1 Jan Key functions must be identified 2. Firms must ensure all persons performing a key function are fit and proper 3. Firms must notify the regulator and provide information to assess if they are fit and proper 4. A governance map must be compiled 3

4 The regulatory focus Solvency II firms 450 re/insurers; not 100 smaller firms outside SII PRA sound & prudent management FCA governance & individual conduct UK /

5 UK implementation 1. The senior insurance managers regime seeks to ensure that the senior persons who are effectively running insurers, or who have responsibility for other key functions at those firms, will behave with integrity, honesty and skill. 2. It acknowledges the responsibility and accountability of these key individuals for the sound and prudent management of their firms. 3. The scope of the regime is broadly aligned with the regime for banks but tailored to take account of the specific features of the insurance industry and the relevant legislative framework a) No criminal sanctions b) No reversed burden of proof c) No certification staff d) Conduct rules only apply to CFs e) Pre-approval retained 5

6 Who s covered? 1 st senior managers Senior Insurance Management Functions Subject to PRA CF pre-approval Fewer than currently a) Chief Executive Officer (SIMF1) b) Chief Finance Officer (SIMF2) c) Chief Risk Officer (SIMF4) d) Head of Internal Audit (SIMF5) e) Group entity senior insurance manager with significant influence (SIMF 7) f) Third country branch manager (SIMF19) g) Chief Actuary (SIMF20) h) With-Profits Actuary (SIMF21). i) Chief Underwriting Officer (SIMF22) (GI, reinsurers & Lloyd s managing agent) j) Underwriting Risk Oversight Function (SIMF23) (Lloyd s) UK /

7 Who s covered? 2 nd key function holders Key function holders all other senior persons running an insurer or responsible for other key functions. Four specified key functions 1. Actuarial Function, 2. Risk Management Function, 3. Internal Audit Function 4. Compliance Function Plus other directors (FCA) Plus others as the firm determines UK /

8 Who will be a CF? PRA 1. Chief Executive 2. CFO 3. CRO 4. Head of internal audit Plus stated other functions FCA 1. Executive & other functions not PRA-approved probably CF 8, 10, NEDs to consult separately KFH need not be CFs Certain functions must be allocated to a CF UK /

9 Allocating core responsibilities to CFs/[NEDs] 10 core responsibilities must be allocated to a CF 1. Ensuring persons performing a key function are fit and proper 2. Leading the development of the firm s culture and standards 3. Embedding the firm s culture and standards in day-to-day management 4. Integrity of the firm s financial information and regulatory reporting 5. Allocation and maintenance of the firm s capital and liquidity 6. Development and maintenance of the firm s business model 7. Performance of the firm s Own Risk and Solvency Assessment (ORSA) 8. Induction, training and development for the firm s key function holders 9. Maintenance of whistleblowing 10. Overseeing remuneration UK /

10 Some more detail Senior Managers Play a critical role & will be held responsible for ongoing safety & soundness & protection of policyholders. Key function holders Must be fit & proper. Where KFH not a CF, the firm determines & the PRA reviews fitness & properness All CFs Firm must perform due diligence on candidate Regulator will scrutinise on interview SIMF & KFH The firm must notify the regulator of their skills, experience & scope of responsibilities UK /

11 Fit & proper Fit & proper (building on Solvency II) means Honest & have integrity Competent, knowledgeable & experienced Understand and committed to meet the new rules, requiring Training Guidance Regulator will scrutinise during supervision And an insurer must Request & provide regulatory references & criminal checks for CFs Assess F&P of KFH Ensure CFs & KFHs observe conduct standards Advise regulator of information material to F&P assessment, including conduct breaches of CFs & KFHs UK /

12 So in summary Current CF New PRA CF FCA SIFs PRA Director (CF1) CFO (SIMF2) CRO (SIMF4) Head of Internal Audit (SIMF5) Group Entity Senior Manager (SIMF7) Chief Actuary (SIMF20) Underwriting Function (General Insurance Firms) (SIMF22) Underwriting Risk Oversight Officer (Lloyd s) (SIMF23) CF1s not otherwise approved by the PRA PRA NED (CF2) To be consulted on separately PRA CEO (CF3) CEO (SIMF1) UK /

13 Current CF New PRA CF FCA SIFs FCA Apportionment (CF8) FCA Compliance (CF10) FCA CASS Operational Oversight (CF10a) FCA Money Laundering Reporting (CF11) PRA Actuarial function holder (CF12) PRA With-profits Actuary (CF12A) PRA Lloyd s Actuary (CF12B) PRA Systems and Controls (CF28) FCA Significant Management (CF29) FCA Customer function (CF30) Chief Actuary (SIMF20) With-profits Actuary (SIMF21) Chief Actuary (SIMF20) CFO (SIMF2) CRO (SIMF4) CIA (SIMF5) GI underwriting (SIMF22) Lloyd s Underwriting Risk (SIMF23) Group Senior Manager (SIMF7) To be reviewed Compliance (CF10) CASS Operational Oversight (CF10a) MLRO (CF11) CF29s not otherwise approved by the PRA Customer function (CF30) UK /

14 In a nutshell Senior insurance manager Key function holder Fit & proper Pre-approval If a CF Allocated core responsibility Advise PRA of skills, experience & responsibility Conduct standards: PRA CFs & FCA CF1, 2, 10 & 29 If a CF if a CF UK /

15 The governance map Solvency II requires appropriate & transparent allocation of oversight & management responsibilities Insurer must compile & maintain document showing Firm s key functions What positions run the firm Individuals in each position or with responsibility Allocation significant responsibilities Reporting lines Regulator will use for BAU and will scrutinise during supervision UK /

16 Quoting from the bank requirement... The governance map should be Single, comprehensive up-to-date document Describing management and governance arrangements To ensure collective allocation of responsibilities complete Detailed lines of reporting & responsibility & the persons performing them Details of management & governance of firm s main business areas & governance functions UK /

17 What s the timetable? 1 Jan 2016 KFH rules commence Governance map Notification requirement F&P assessment Until implementation, current CFs in place Until implementation, need not allocate all responsibilities From implementation New conduct standards Referencing Satisfied meeting conduct standards 17

18 What are we waiting for? The final tranche of the PRA s rules for 1. the full set of CFs for insurers; 2. application of conduct standards to individuals; 3. allocation of prescribed responsibilities; and 4. a requirement for regulatory references and criminal record checks in respect of individuals proposed to be in a CF. Plus a CP on NEDs generally. The PRA will set out its planned timetable later this year for the implementation of the remaining rules that are proposed in this CP. UK /

19 So what do you need to do? Guidelines: a) Convert not create b) Use existing resources Tasks: 1. Scope who is affected 2. Create the templates 1. Governance map 2. Fit & proper 3. Contracts of employment & job descriptions 3. Review procedures 4. Train staff 5. Check you ve got it right UK /

20 And what about the rules? 20

21 Applying the conduct rules Aligned with new rules for bank staff Insurer must ensure compliance UK /

22 The individual conduct rules All PRA & FCA CFs in a Solvency II firm First tier Individual Conduct Rules Rule 1: You must act with integrity. Rule 2: You must act with due skill, care and diligence. Rule 3: You must be open and cooperative with the FCA, the PRA and other regulators. FCA only Rule 4: You must pay due regard to the interests of customers and treat them fairly. Rule 5: You must observe proper standards of market conduct. 22

23 First tier rules for all PRA & FCA CFs Rule 1: You must act with integrity. Similar issues to APER 1 these are live examples a. Misleading the regulator during an investigation, or false returns b. Knowingly breaching rules acting outside permissions c. Dishonest personal gain overcharging client, secret profit or concealing losses d. Acting against customer interests deliberate or reckless breaches e. Breaching internal policies false MI PRA does not expect to have to describe what this means. 23

24 Rule 2: You must act with due skill, care & diligence. Similar issues to APER 2 a. Inadequate oversight of sales operations b. Making unfair customer communications c. Recommending a product you did not understand PRA expects a manager to a. Understand the business for which he is responsible b. Generally understand the insurer s key risks c. Require explanations from reports 24

25 Rule 3: You must be open & cooperative with regulators. Similar issues to APER 4 a. Intentionally submitting an inaccurate regulatory return b. Failing to advise that firm was in breach of capital requirement PRA focuses on proper provision of information though reporting mechanisms 25

26 Rule 4: You must pay due regard to the interests of customers and treat them fairly. Probably similar to Tribunal cases on meaning of fit & proper a. Turning a blind eye to obvious problems and failing to follow up suspicions b. Pressuring advisers to sell without regard to suitability c. Failure to appreciate a conflict when giving advice d. Effecting unauthorised transactions 26

27 Rule 5: You must observe proper standards of market conduct. Similar issues to APER3 a. Abusive short selling impacting non-eu market b. Selectively disclosing pre-publication research But the market can be an insurance market 27

28 Second tier Conduct Rules for PRA & FCA SIFs at Solvency II firms SI1: You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively. SI2: You must take reasonable steps to ensure that the business of the firm for which you are responsible complies with relevant requirements and standards of the regulatory system. SI3: You must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee the discharge of the delegated responsibility effectively. SI4: You must disclose appropriately any information of which the FCA or PRA would reasonably expect notice. SI5: You must pay due regard to current & future policyholders interests by ensuring the firm provides an appropriate degree of protection for their insured benefits (PRA) 28

29 What do the senior manager rules mean? 1. You must map the business & identify the risks 2. You must be satisfied these are properly controlled 3. You must pay particular attention to sound & prudent management 4. You must skilfully delegate and supervise subordinates 5. You must understand the business and get (and give) the right MI 6. You must determine (or observe) the right standards & remedy where not These requirements raise similar issues to APER 5 7 a. FD overseeing 50m unrecorded debit balances b. Chief Exec knowing retail suitability of only 60% c. Chief Exec running high risk business knowing weak controls d. Chief Exec expanding business without skills or systems Compare with Mr Pottage of UBS 29

30 When will the regulators discipline somebody? When you a) fail to comply with rules of conduct b) Are knowingly concerned in the insurer s contravention of a relevant requirement 30

31 Your responsibility is personal, not collective You cannot say 1. Unfair to pick me out 2. My conduct was not beyond the range of plausible judgement 3. The FCA/PRA never criticised us 4. The strategy was agreed by the Board 5. I didn t design the controls 6. It was the deteriorating economy that caused it 7. I did take some steps to improve things 31

32 So what should you do? 1. Walk through your area of responsibility from nose to tail Periodically refresh your understanding of the risks especially as things change Is the governance fit for purpose 2. Identify and calibrate the risks How do you manage them Look at the MI you give and receive 3. Assess operational risk framework Check what Compliance monitors Does the business get the right messages 4. Review your role (and statement of responsibility) Is it clear and up-to-date Are your reports suitable and do you oversee them 32

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