Early in May the PRA published CP18/16, its Consultation Paper on statutory reporting for Small Insurance Firms and Friendly Societies - OAC article. The PRA has now issued its Policy Statement on reporting by these firms and this article draws attention to the key points.
The Policy Statement confirms the separation of non-Directive firms into Companies and Friendly Societies, each with their own separate section of the Rule Book.
For Insurance Companies the statutory returns are broadly the same but there has been some simplification of the requirements.
For non-Directive Incorporated Friendly Societies the impact is considerable as it has now been confirmed that there will no longer be a requirement for them to appoint an Actuarial Function Holder or a With-Profits Actuary. The reporting requirements change to a triennial valuation using Form FSC2 rather than an annual investigation reported on Form FSC1.
For non-Directive Registered Societies there is very little change.
Non-Directive firms that are not Friendly Societies are still required to appoint an Actuarial Function Holder and to carry out an annual investigation which must be submitted within three months of the end of the financial year. The returns are similar to the current PRA return but a number of forms have been simplified or omitted. However, companies will now be required to submit their returns electronically either using the BEEDS portal or by email.
Non-Directive Incorporated Friendly Societies
The changes here are significant. The requirement to produce an annual valuation and a full FSC1 return has been removed and in future firms will have to carry out a triennial valuation and report it on Form FSC2, with a certificate in the form of Form FSC4 for the intervening years. A Society is required to have an Appropriate Actuary to carry out the triennial valuation. This brings these Societies into the same reporting regime as that applicable to Registered Societies. The roles of Actuarial Function Holder and With-Profits Actuary no longer apply to these Societies.
These Societies will only be required to complete Form FSC4 for the year ending 31 December 2016 and then carry out a triennial valuation at 31 December 2017. There will no longer be any need for a Reviewing Actuary as the requirement for that falls away now that Societies no longer need to complete the FSC1 Return.
Non-Directive Registered Societies
For these Societies there is virtually no change in requirements. The one important change is that the draft proposals require all Societies to carry out a triennial valuation at the end of 2017. This means that a Society which was due to carry out such a valuation at the end of 2016 will only have to complete form FSC4 in respect of that year and carry out the full valuation a year later.
As we commented when the Consultation Paper was issued we believe these proposals are sensible and appropriate. They are genuinely deregulatory, particularly for Incorporated Societies where the amount of reporting has always seemed burdensome compared to that of a registered Society of similar size.
What is there for firms to do?
Small insurance companies will need to ensure that they are aware of the changes to the reporting forms and are ready to complete those for the financial year ending after 1 July 2016. The PRA has confirmed that any current exemptions from statutory reporting applicable to these firms will be “grandfathered” across into the new regime.
Non-Directive Incorporated Societies will no longer be required to appoint an Actuarial Function Holder or a With-Profits actuary. Such firms will have to appoint an Appropriate Actuary to carry out a review of solvency at 31 December 2016 and complete Form FSC4. Some firms may decide to carry out a full annual valuation (even if it does not have to be reported) in order to maintain a fuller picture of the financial situation and to provide a firm basis for distribution of surplus.
For non-Directive Registered Societies it is business as usual except that any Society whose triennial valuation was due at 31 December 2016 will now be required to complete Form FSC4 at that date and carry out a triennial valuation at 31 December 2017.
How can OAC help?
OAC has a number of recognised actuarial experts who have a lot of experience in this area of regulation. If you have any questions about the issues covered in this document, or you need leading actuarial support, we would be delighted to talk to you.
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