Letter from Anna Sweeney: Market conditions facing specialist general insurers: Feedback from recent PRA review work

Letter to Chief Executives of specialist general insurance firms regulated by the PRA
Published on 31 May 2018

Update 8 November 2018: Following the letter from Anna Sweeney, we received responses from firms, which supervisors have followed up individually with the CEOs of Category 1-3 firms operating in the London Market. The letters included our overall impression of the market’s reaction to our letter, a version of which is presented below.


We were pleased to see that there was almost universal agreement from respondents that the issues we raised in the letter presented clear risks to market participants. Many respondents acknowledged that their own firm faced these risks and a number of these set out clear plans to address them (for example, improvements in underlying data capture, remediating portfolios, improving pricing models, and enhancing the feedback loops between pricing and reserving). Some firms were able to provide clear and quantified evidence as to how the risk was already being managed through existing actions, or could explain why some issues were less relevant due to the particular nature of their business model.

More disappointingly, a number of respondents continued to assert, without convincing evidence, that while the risks we raised were a market-wide problem they did not apply to their firm. In some cases this was due to the perception that actions already taken were effective in remediating the issues, even when it was still too soon to assess the outcomes. It is possible therefore, that some firms are taking false comfort about the extent to which the risks we raised apply to their own business models. Some specific areas where we saw weaknesses in firms’ responses were:

  • Failure to consider the forward-looking implications of the issues raised, by assuming that past actions were sufficient to manage risks which were still evolving within the market.
  • Assertions that the risks raised were not applicable to the firm, where this seemed to be contradicted by their own historic results. 
  • Some firms seemed content to rely on third parties to identify and mitigate risks on their behalf (for example, suggesting that Lloyd’s would guard against the risks of business plan optimism within its market, or that validators would identify if there was any corresponding shortfall in capital). We remind boards and senior management that they remain responsible in the first instance for managing and mitigating risks to their businesses.

We are also aware that, in taking actions to address poor performance, firms may decide to shrink particular books or even withdraw from certain lines of business. Others, however, may see this increased ‘churn’ of business as an opportunity to grow. Some might consider moving business from one underwriting platform to another. While there may be a clear commercial rationale as to why some business lines may be profitable for one firm (but not another), absent any change in the underlying risk characteristics (eg improvement in price, terms and/or conditions, reduction in exposure), we will look for evidence of boards considering carefully any opportunities presented to them to grow portfolios in such a manner. We  have also requested to be notified of any material acquisitions of such business, and firms should be prepared to demonstrate, in quantitative terms, why such action makes sense. 

We are planning to meet with firms, where the response was considered to be disappointing, to give further feedback. We will look to request firms with poor recent underwriting results to provide us with a copy of their 2019 business plan, and a justification of why their plans are appropriate in light of the feedback provided in the letter published on 31 May 2018, and that any growth strategy is reflected in these business plans. Should we see evidence of firms not taking suitable actions to mitigate against the risks highlighted, we would consider taking further regulatory action where appropriate. 

PDF Letter from Anna Sweeney