FSA consults on prudential requirements for Lloyds

The consultation paper, Prudential requirements for Lloyds insurance business (CP66), proposes a number of important innovations in this area:

• replacing the annual Statutory Statement of Business with a Lloyds solvency Return based on that completed by insurance companies;

• a number of high level prudential requirements applying to the Society;

• the direct application to the Society of asset and liability valuation rules modelled on those that apply to insurance companies; and

• a simplified, but no less rigorous, solvency test for the Society.

The proposed prudential requirements include rules and guidance designed to provide additional tools for the FSAs prudential supervision of Lloyds insurance business. The Society will be required to continue to:

• maintain a risk-based capital system;

• monitor marketwide aggregations of risk;

• review and monitor syndicate business plans; and

• monitor systems and controls in underwriting agents.

The consultation paper also seeks comments on a number of other Lloyds-related requirements.

Notes for editors

1. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; the protection of consumers; and fighting financial crime.

2. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.

3. Lloyds is a leading speciality insurer and reinsurer, insuring risks world-wide. It currently regulates itself under the Lloyds Acts 1871-1982. The FSA already has primary responsibility for the prudential supervision of Lloyds.

4. This paper also seeks comments on some other proposed requirements relating to Lloyds:
   • a draft insurance market direction needed to enable eligible Lloyds policyholders to have access to the Financial Ombudsman Service (as they currently have to the Insurance Ombudsman Bureau); and
   • some requirements relating to former underwriting members of the Society.
     
   • The FSA published outline proposals for Lloyds prudential requirements in June 1999 in its response to Consultation Paper 16, which was issued in November 1998. These proposals were developed in more detail in two papers circulated to the market at the end of last year.

5. The FSA is seeking comments on Consultation Paper 66 by 30 September 2000. The FSA plans to publish its response and the final version of the prudential requirements at the end of this year. They are due to come into effect with the implementation of the Financial Services and Markets Act, which HM Treasury announced on 18 July would be in about a years time. The first new Lloyds Return will therefore be submitted for the year ending 31 December 2001.

6. CP66, CP16 and the June 1999 Response to CP16 are available on the FSAs website under publications.

Appended information

This Consultation paper is available from the publications section of our web site. The direct URL is http://www.fsa.gov.uk/pubs/cp/cp66.pdf.