For those reasons, we have actually approved internal models with credit components that do not meet our QIs, where the firms in question demonstrated that their exposure is atypical and hence warrants a non-standard calibration, or provided off-setting conservatism in other aspects of the model. PRA’s approach to insurance supervision I’d like to turn now to some broader thoughts about what it means for the PRA to supervise insurance 9  companies. I’ve previously spoken about the history of insurance regulation in the UK and won’t re-hash that here, since I’ve not yet reached the age where it is acceptable simply to repeat myself. Happily, according to our longevity QI I should have plenty of time for that further down the track. But I would like to provide some insights into why and how the PRA operates in the way it does. The UK insurance industry is the fourth largest in the world. It employs 300,000 people in the UK, provides 10  cover for nearly 27 million households , and has £ trillion  11  of assets. It is therefore unsurprising that Parliament has given the PRA a General Objective of delivering safety and soundness of insurers, as well as banks. But for insurers only, Parliament has also given us an additional Insurance Objective – of equal weight to our General Objective – which is to contribute to securing an appropriate degree of policyholder protection.
In fact, the PRA’s resourcing model already works to focus our resources on those areas of most concern. We categorise each regulated firm according to its size and the potential harm customers would suffer should it fail. The majority of firms we regulate are assigned the lowest category, reflecting the low level of risk they pose to our objectives. Firms in higher categories receive more supervisory and specialist resources, and decisions for those firms are approved at more senior levels within the PRA’s decision – making framework. The IEO have challenged us to look at this system again and we will do so. Our Executive Director for Insurance Supervision, David Rule, will take forward discussion of all of these issues with the Prudential Regulation Committee. We will then revise our Approach to Insurance Supervision document to explain any changes we decide to make. In doing this we will of course need fully to factor in our third objective, to facilitate effective competition – 12  which was also recently reviewed by the IEO . Although this is a secondary objective, it is given a high priority in the PRA and is also quite rightly a topic in which the Treasury Select Committee takes a strong interest. Our competition work spans banking and insurance, but there has been much more public debate about the former.