04 March 2013

Risk.net: FSA ramps up insurer Arrow visits

The UK's Financial Services Authority ramped up the number of intensive on-site inspections of insurance businesses last year, according to figures obtained under the Freedom of Information Act.

The regulator undertook 47 so-called Arrow visits of insurance companies and intermediaries during the first nine months of last year, compared with 34 for the whole of 2011.

Regulatory experts attributed the increase to the FSA re-allocating resources back to the supervision of the insurance sector after it was diverted to examining the banking industry in the wake of the financial crisis.

Steven Francis, a partner at City law firm RPC, which obtained the data, says: "In the acute financial crisis the FSA diverted resources to higher-impact undertakings [and it] probably didn't look at the insurance sector as closely as it needed to. Now it is diverting resources back to business-as-usual processes." He adds: "The insurance sector has been systemically under-explored by the FSA and poorly understood. In addition, the sector does have a relatively in-progress regulatory challenge: Solvency II."

Arrow visits are gruelling, in-depth regulatory probes of individual businesses where the FSA demands a significant amount of documentation to assess risk handling and then conducts on-site interviews with senior management and other staff. The visits will have been used to scrutinise issues such as insurers' readiness for Solvency II, their reserving against possible claims and any retail business the insurer has, even if it is very small.

More generally the FSA, Francis says, may have been pushing to begin Arrow visits before its disbandment next month and replacement by the Prudential Regulatory Authority and Financial Conduct Authority. It is not yet clear how the new regulatory bodies will approach supervisory reviews, but Francis suggests that they will focus on particular themes, such as control of binding authorities or relationships with brokers. "I expect regular thematic reviews – a series of mini Arrow visits", he says.

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