The Outlook is the supervisor telling the sector what it is concerned about and where its attention will go over roughly the coming year, sector by sector. This edition puts operational risk at the top, treats the risks attached to data, models and technology as higher than a year earlier, and carries two further themes: how firms look after the people they serve through rapid change, and the efficiency and effectiveness of regulation and supervision themselves. It is not a rule and it creates no obligation. It is a reliable guide to what a supervisor will ask about.
Operational resilience in a company this size is not a programme, it is a list. What has to work for a guarantee to be issued on Monday: the underwriting decision, the wording, the document itself, the record of it, the people who know the book, and the small number of third parties the company depends on — the actuarial and internal audit arrangements a Board approves and monitors, the banks the deposits sit with, the systems the records sit in. A short list is an advantage and a trap at once. It is easy to write down, and easy to have single points of failure in. The exercise worth doing is not another policy document; it is naming, for each item on the list, who does it when the person who normally does it is unavailable.
On data and models we have less exposure than the theme implies, and it is worth being specific rather than reassuring. The capital requirement is calculated on the standard formula, with no undertaking-specific parameters and no internal model, and every figure in the filed reports on this site comes out of it. No risk is accepted algorithmically: a bond is written by an underwriter against documents. The assistant on this site answers from the material published here, prices through the same function the public bond calculator uses, and cannot see a case, a quotation or a policy — which is stated on our legal page rather than left as an impression.
The consumer theme reaches us mostly at one remove, since business comes to us through brokers and the beneficiary of a guarantee is usually a public body or a commercial counterparty. Where it reaches us directly is in plain language. A wording the beneficiary reads differently from the applicant is a dispute waiting for an occasion, and no amount of process cures a document that says two things.
The last theme, the efficiency of regulation itself, is the one we would encourage other small firms to take part in rather than watch. A supervisor asking how its own rule-making should work is an unusual invitation, and the firms with the least capacity to absorb rules are the least likely to answer it.
Written by the underwriting team at FDI Insurance d.a.c., Dublin. This piece is general information, not advice on any particular transaction — and it is not an offer of insurance.
