ABI Surveys ICAS Implementation

August 25, 2006

The Association of British Insurers has released the results of a survey on how its members are reacting to the implementation of Individual Capital Adequacy Standards (ICAS), which were introduced by the U.K.’s Financial Services Authority (FSA) on January 1, 2005, and how well the FSA conducted its review of ICAS implementation in each firm.

The ABI said its “survey reveals insurance firms see the benefits of ICAS but seek better dialogue with the FSA.” 24 general insurance firms were polled about their experiences in implementing ICAS.

Peter Vipond, ABI Director of Financial Regulation and Taxation stated: “Firms believe ICAS has helped to embed a risk-based approach to calculating how much capital firms need. As a result, customers are being properly protected without prices being driven up, which would result if firms were required to hold additional, unnecessary capital.

“The ABI is keen that the European Commission draws on this positive experience in establishing new capital adequacy standards for the EU through the Solvency 2 Directive [now sceduled to come into force in 2010]. The firms also stress the importance of improved feedback from the FSA in the ICAS process. We are continuing to discuss this issue with the FSA, which has recognized the need for such dialogue”.

The bulletin detailed the main findings as follows:
— ICAS and the integration of a risk-based approach:The ICAS process is helping firms to embed a risk-based approach within the business. 65 percent of firms use their Individual Capital Assessment for fundamental business decisions, and 95 percent of firms also use it for day-to-day management decisions.
— FSA Communication :Over 40 percent of firms believed that improved communication from the FSA was needed during the process. Firms would like meetings with the FSA earlier in the process and seek a greater opportunity to discuss and resolve any FSA concerns before the final Individual Capital Guidance (ICG) meeting. Where the FSA believes that the firm’s level of capital needs adjustment, firms would like the opportunity to discuss this decision with the FSA.
— Time and Resource: The ICA review is a sophisticated, detailed and labor-intensive process. On average, firms had the equivalent of somebody working on the review full-time for a year. The reviews also stretched the FSA; for instance, 40 percent of firms have had to wait up to 12 months for their Individual Capital Guidance.

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