(Adds industry reaction)
May 22 The Bank of England's governor has warned
insurers they are under scrutiny by supervisors and he will hold
top executives accountable in the same way that he has cracked
down on Britain's bankers.
In a comment piece published in The Times newspaper on
Thursday, Mark Carney said "integrity, honesty and skill" in
senior managers are not optional, whether they are in charge of
insurers, investment banks or building societies. (link.reuters.com/vaj59v)
Carney said the Bank of England wants senior managers of
insurance companies to be held accountable if things go wrong
and policyholders lose out.
"So alongside reforms that Parliament has asked us to make
to hold senior bankers to account, we will create a similar
regime for senior managers in the insurance industry," Carney
Carney did not detail what sanctions insurance executives
could face though new laws mean bankers found guilty of
"reckless misconduct" could face jail.
Carney also warned that although insurers escaped largely
unscathed from the meltdown in global credit markets seven years
ago, they too face risks.
Britain shook up financial regulation in 2013, launching a
new watchdog operating from the Bank of England - the Prudential
Regulation Authority - with a remit to scrutinise banks and
The governor said the Bank would be "vigilant" about the
flood of new capital going into higher-risk investment vehicles,
as record low interest rates put pressure on insurers to
consider higher-risk investments to improve their returns.
Carney said the central bank is working with its European
counterpart to help to make it easier for insurers to provide
more funding to small, medium and large businesses and help to
pay for long-term infrastructure projects.
Despite stringent rules governing the amount of capital they
should hold, there is always the danger that an insurer will
fail, Carney said.
A senior board member at a blue chip British insurance group
said the industry is benefiting from higher standards expected
of it from regulators in appointing senior executives and
holding capital against the risks they take.
"The new way in which we are seeing regulators approach
regulation in the industry, giving more access to senior people,
(taking) more interest in the business model and the judgements
some of the companies are making... I believe we are seeing the
benefit of that," he said, on condition of anonymity because he
is not authorised to talk to the press.
A spokesman from industry body the Association of British
Insurers said: "We are very pleased (Carney) recognises the
value of the industry ... You would expect the Bank of England
to keep a close eye on an industry that is so fundamental to the
UK economy and to people's lives."
Britain's second financial watchdog, the Financial Conduct
Authority, said in March that it investigated whether people
locked into some 30 million pension and other savings plans sold
by insurance firms in the 30 years after 1970 are treated fairly
compared with new clients.
Shares in insurers including Aviva, Legal & General
, Prudential, Resolution and Standard Life
were hit on speculation the FCA probe could lead to
changes that affect the profitability of the products.
(Reporting by Aashika Jain; Additional reporting by Chris
Vellacott; Editing by Lisa Shumaker/Ruth Pitchford)