LONDON (Reuters) - Insurers should check their capital levels as premiums on policies will probably continue to soften this year, a senior Bank of England official said on Monday.
Chris Moulder, the BoE’s director of general insurance, said the “very tough market conditions” are likely to continue in much the same vein in 2016.
“We see premium rates in several lines continue to fall and, at the same time, extended terms and conditions are being accepted,” Moulder said in a speech.
Companies have been cushioned by the continued absence of significant natural catastrophe losses, and prior year reserve releases, Moulder said.
Many business plans at insurers still, however, contain some element of growth for 2016.
“I want to be quite clear that we don’t consider this, in itself, to be problematic. It is, however, important that firms that are looking to expand in current market conditions do so in a responsible and sustainable manner and are transparent with Boards about how they intend to attract business.”
“We expect boards to ensure that firms’ assessment of risk and capital requirements remain valid in this very difficult trading environment,” Moulder told an audience of insurance sector non-executive directors.
Boards should be “relentlessly inquisitive” in understanding and challenging controls of underwriting, Moulder said.
He reiterated several warnings made in a “Dear CEO” letter the BoE sent to insurance companies late in 2015.
Moulder also said there were risks of over-reliance on using models when buying reinsurance to cut capital costs, pointing out the difficulties in estimating exactly when a 1-in-200-year event might occur.
Reporting by Huw Jones; editing by Carolyn Cohn and David Clarke
Our Standards: The Thomson Reuters Trust Principles.