Representing the interests of the London company market to regulators involves a twin-track approach of both influencing the rules as they are developed and helping businesses comply with them when implemented, writes Dave Matcham
In recent months the International Underwriting Association (IUA) has been undertaking a strategic review of the services it provides for the London company market.
Evolving market dynamics have fundamentally altered the structure of the market and the services members require from their association have also changed.
As a result the IUA Board, after informal feedback from member companies, will focus on providing market services, delivering technical support for underwriters, continuing to drive market reform processes and improving broker relationships.
In addition, the association's representational work will operate a twin-track approach of both influencing the regulatory environment, continually pressing the case for a "light" touch, at the same time as helping members to cope with the regime that we actually get.
The latter has been greatly enhanced through the establishment of a new compliance committee in May 2004. The move was a direct response to the growing number of requests the association has been receiving from its member companies for help with understanding and managing an increasingly complex regulatory environment.
In less than a year the committee has become one of the IUA's most active and best supported groups. Chaired by Rob Mankiewitz, compliance officer at Aspen Re, its aim has been to provide practical help and information for companies working to deal with this growing compliance burden.
Monitoring compliance and regulatory developments on behalf of its members has always been one of the IUA's core activities. But as the extent and nature of insurance and reinsurance rules have changed in recent years this role has become ever more important.
Frequently it relates to the activities of the Financial Services Authority (FSA), but by no means exclusively so; as participants in an international market, underwriters must also stay abreast of what regulators are up to in the countries where their customers are based.
Certainly the bulk of compliance work will always be carried out by member companies themselves. It is, however, an enormous subject and very difficult for any one firm, no matter how well resourced, to effectively maintain comprehensive, up-to-date knowledge.
The IUA seeks to fill the gaps through a secretariat that collectively offers compliance expertise and is in continual contact with regulators and legislators internationally.
It is the compliance committee that is now largely responsible for overseeing such activity. It examines compliance demands and provides a forum for the exchange of knowledge and experiences.
Unsurprisingly, top of the committee's agenda was the continuing development of the FSA's regulatory regime for insurance.
IUA members and officers have met with the FSA to clarify requirements relating to the FSA's consultation paper 187 on insurance selling and administration and the proposals for the supervision of brokers. Work is also ongoing to examine the calculation of capital requirements for insurers under consultation paper 190.
Elsewhere the compliance committee has also looked at US Federal Excise Tax obligations and Sarbanes-Oxley legislation, to name just two concerns.
And in the first few months of 2005 it has established two working parties to examine particular issues in detail.
Getting tough on fraud
The first is fraud and financial crime. Focussing on particular areas of risk for the re/insurance industry the new group is providing guidelines for combating the problem. It is reviewing FSA material and instructions and other data sources.
A summary of relevant international regulations, together with practical examples for companies to consider when training staff to combat fraud and financial crime, has already been produced.
Secondly there is a new conflict of interest working party that has been tasked with identifying high level principles applicable to the London Market and promoting best practice principles for the maintenance of business ethics. It will also be reviewing material from the FSA together with corporate governance codes of practice.
But the IUA's regulatory attentions are not purely reactive. The second strand of the association's twin track representational approach involves maintaining a dialogue with governments, regulators and intergovernmental institutions worldwide. Where appropriate the association will lobby for changes to existing rules and regulations and recommend options for future legislation. To this end, in addition to the work of the compliance committee, there exists a representation and legislation committee and an accounts, taxation & supervision committee, both of which are tasked with leading and influencing industry regulatory developments.
The committees monitor, examine and advise the IUA board and member companies on legal and supervisory issues affecting the London Market whether they arise in the UK, Europe, the US or any other country. They are also concerned with accounting and taxation issues and studies of economic and insurance market trends.
The company market's influence on such developments is exerted through the IUA's participation in a number of high-level groups at UK, European and international levels. For example, the association is a member of the British Insurers European Committee (BIEC), a body which enables representations to be made directly to the European Union, and indirectly through the Comite Europeen des Assurances (CEA, the federation of insurance associations in Europe).
Furthermore, the IUA is involved in the Liberalisation of Trade in Services (LOTIS) committee which is managed by International Financial Services London (IFSL - formerly British Invisibles); it also supports the Financial Leaders Group (FLG), a US/European grouping of high level businessmen.
One example of the IUA's work in this area has been its long-running campaign to introduce a single EU regulatory "passport" for reinsurers. We are confident this will be drawn to a successful conclusion in 2005.
The association is also paying close attention to Solvency II, the EU's review of insurer solvency rules, which has potentially far-reaching consequences for our industry.
And pressure is being kept up to reform US collateralisation rules that require so-called alien reinsurers to post collateral equal to 100% of gross liabilities when writing US risks.
Whenever there is a change in the regulatory environment which has a meaningful effect on the underwriting business of our members the IUA must respond to the challenge, seeking to influence the debate and representing companies' interests.
- Dave Matcham is chief executive of the International Underwriting Association.
LONDON - THE IUA AT WORK
Some of the issues that the IUA is focusing on include:
- The FSA's regulatory regime for insurance, including consultation paper 187 and consultation paper 190
- The US Federal Excise Tax obligations
- The Sarbanes-Oxley legislation
- Fraud and financial crime
- Conflicts of interest
- The reinsurance directive
- Solvency II
- US collateralisation rules
LONDON - FSA'S CONSULTATION PAPERS 187 AND 190
CP190: The Financial Services Authority (FSA) following Directive 2002/13/EC (Solvency I) wanted more prudent insurance regulation in relation to the minimum capital required to absorb unexpected losses. In the UK, the FSA believes this should be at least twice the EU minimum requirement. The capital regime for non-life insurers will be adopted in two phases; initially with reporting requirements and later becoming a prudential requirement. Two main features of the regime are:
- A new risk based enhanced capital requirement (ECR), which will be based on capital charges applied to asset and insurance risk;
- Individual capital guidance (ICG) to firms will be based on the FSA's own view on the adequate capital individual firms should hold, which would also take into account firms' assessments of their own capital needs.
The FSA hopes this will lead to more transparency, earlier regulatory intervention when financial problems develop and a closer alignment of capital to risk.
CP 187: The FSA seeks with this consultation paper to draft rules 'for the selling and administration of general insurance and pure protection contracts, apart from long-term care.' It also hopes to define forthcoming rules relating to the information firms need to disclose on their status when selling packaged investment products and mortgages. Finally the consultation paper looks into defining rules for exempt professional firms when doing business, which is in connection to insurance contracts and mortgages.