Insurance Market Update – December 2005 - Regulation

Capital adequacy goes strategic

The implementation of the FSA’s Individual Capital Adequacy Standards regime in the UK has far-reaching consequences for all stakeholders in the insurance industry. The "Use Test" in particular, which seeks to embed a firm’s capital adequacy calculations in its risk management framework, will bring prudential capital into the boardroom as a tool for shaping strategy. Deloitte’s Roger Jackson explores the benefits of the new regime and suggests that firms that get on board early will be at a distinct advantage.

The Individual Capital Adequacy Standards (ICAS) regime in the UK has now been in place for nearly a year and the challenge has moved from discussing the proposals to calculating the number. This is set to change over the next couple of years, to how to embed a firm’s capital calculations into their risk management processes; what the FSA calls the "Use Test". As we shall see, this article explores some of the potential consequences on key