The Prudential Regulation Authority could introduce a mandated winding up mechanism for insurance companies if it decides current arrangements are not adequate.
Since the financial crisis the Bank of England has introduced the Special Resolution Regime for winding down banks which forms a part of the new supervisory approach of the PRA to banks.
However, there is no equivalent regime for insurance firms.
Laying out the PRA approach to regulating insurance companies at a conference in London yesterday, FSA head of insurance Julian Adams said he was “broadly comfortable” with existing mechanisms but that they could have shortcomings.
He said: “There are numbers of long standing and well understood mechanisms, for instance solvent run off and schemes of arrangement, for seeking to resolve insurers which have either failed or closed to new business. As we are broadly comfortable with the way these can and do work in practice, understanding the extent to which these would be viable in the circumstances of individual firms will be crucial, as there may well be shortcomings in the way in which generally effective resolution mechanisms perform in the face of individual firm issues. If these short comings are widespread there could be room for the development of new and potentially mandated resolution mechanisms in the future.”