December 2018 Regulatory Updates

Key dates

2009

October 2013; Period of under-reserving breaches and manipulation of large loss claims

30 September 2013

Date of €78.2 million technical reserves understatement

October 2013

CBI identifies issues during scheduled supervisory engagement

2014

CBI investigation into RSAII and individuals (e.g., Philip Smith) begins

December 2018

RSAII admits four breaches; enforcement against firm concludes

Suggested considerations

• Conduct reserving process reviews: Ensure claims handlers' recommended estimates are recorded without delay or manipulation; implement independent validation for large loss claims.
• Strengthen internal controls: Develop sound administrative/accounting procedures and mechanisms to detect irregularities (e.g., unearned premium adjustments, claims expenses).
• Enhance governance: Robustify internal reporting structures per Corporate Governance Code 2010 (Section 6.3); promote ethical culture to prevent individual overrides.
• Senior accountability: Boards and executives must oversee compliance; remediate via capital injections if needed, as RSAII did.
• Supervisory engagement: Cooperate fully with CBI probes; apply lessons to Solvency II reserving under Article 101 (post-2016).

What changed

This is an enforcement action, not a new regulation, but it reinforces core pre-Solvency II requirements under the European Communities (Non-Life Insurance) Framework Regulations 1994, specifically Article 13(1)(a), mandating firms to establish and maintain technical reserves for all underwriting liabilities. It highlights breaches of the Corporate Governance Code for Credit Institutions and Insurance Undertakings 2010 (Section 6.3), requiring robust governance, internal reporting, and reliable information flows to decision-makers.