Written by Ciara Davies

The PRA has published a Dear CEO letter addressed to insurance firms, setting out its supervisory priorities for 2021.

The PRA’s priorities relate to:

Financial resilience and credit risk. The PRA expects firms’ boards to satisfy themselves that their firms are resilient enough to withstand a wide range of potential adverse credit scenarios in the short and medium term. Firms should continue to improve their stress and scenario testing, which is used to inform board and board risk committee decision-making, particularly in relation to risk, capital appetite and strategy setting. The PRA will run another insurance stress test in 2022.

LIBOR Transition. Intensive effort will be needed in this respect and the PRA will be monitoring firms’ progress against the targets set by the Working Group on Sterling Free Risk-free Reference Rates and targets for non-GBP exposures where relevant.

Operational Resilience. Firms are expected to consider the next steps they will need to make to meet the standards relating to operational resilience and outsourcing. Taking the lessons from the COVID-19 pandemic, firms should review how their response in that time might be used to develop operational resilience. In particular, firms should focus more on cyber threats.

Climate change. By the end of 2021, firms need to be able to demonstrate that they have implemented the expectations that the PRA set out in its supervisory statement on enhancing firms’ approaches to managing climate-related financial risks (SS3/19). Firms not participating in the Climate Biennial Exploratory Scenario, which is launching in June 2021, are expected to assess the impact of climate risk on their balance sheets in different scenarios and, from these, identify any major risks.

Post-Brexit. At the end of the transition period, the PRA will assume some functions previously undertaken by EIOPA. This will include the publication of technical information used in the calculation of insurance liabilities.