Letter from Dan Curtis: 2023 Thematic review of expected underwriting profit allowed for in Internal Models for General Insurance firms

Dan Curtis, the Head of Division from General Insurance Risk Specialists of PRA writes a letter to Chief Risk Officers of general insurance firms regulated by the PRA regarding the key findings from the thematic review. At the moment, many firms seem to assume „increasing underwriting profits within their approved Internal Models (IM)“, which leads to a reduction of SCR without a justification.
PRA has observed the following common undertakings:
– some firms have tried to remove the unjustified optimism in the expected underwriting profit for IM but only few have performed the necessary „sensitivity or scenario testing to assess the impact“
– some firms do not plan their profits for IM realistically, which is a requirement
– some firms have been identified with weaknesses in business planning model.
Having the above mentioned findings in mind, PRA encourages firms to review their models.