By Tim Edwards, Director, PwC
One of the helpful consequences of the delay to SII is the way that good practices in many areas are continuing to evolve. Of course it is greatly preferable to establish industry standards through consensus and over time, rather than through the sharp shock of an imposed new rulebook. Of course certain elements of SII will be new, especially around valuation requirements, calibrations and reporting, but there are many other elements where existing guidance is likely to be the best guide, even under the new regime.
Since many insurers have found it difficult to anticipate what "good practice" means, we should turn to a number of recent - and not so recent – publications, for example:
• The recently-published Chartered Institute of Internal Auditors (CIIA) paper on “Effective Internal audit in the Finance Sector” requires, inter alia, a greater focus on consistent auditing over the critical financial, operational, regulatory and reputational risks facing each business.
• Earlier this year, the Financial Stability Board (FSB) issued a detailed thematic review on Risk Governance. Of course, the FSB is mostly associated with the development of standards for global, systemically important insurers (G-SII), but other insurers should be aware of their work, as it is setting a standard that will trickle down over time. Just as with the earlier Walker Review (“A Review of corporate governance in UK banks and other financial industry entities”, November 2009) all insurers can benefit from being aware of the expectations on the largest.
• As a further example of adding practicality and to underpin the G-SII initiative, the FSB has recently issued a consultation on “Principles for an Effective Risk Appetite Framework”. This consultation should be of real interest to the many insurers who have admitted that their risk appetite work is as yet quite incomplete.
All of this supports the regular, historic messaging, that it is far better to anticipate and get ahead of regulatory change than to have to respond to it. The delays to SII are providing a useful opportunity to do just that.
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