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Integrated Prudential Sourcebook
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Background
This website is to help financial professionals, students and general public to understand the proposals in the Integrated Prudential Sourcebook. The near final text draft of the sourcebook ( 380 pages published in PS04/16 in July 2004 by the FSA) takes heavy studying and is hard to understand. This website has split the sourcebook requirements into easier to navigate sections and uses flow charts to help the learning process.
What is the Integrated Prudential Sourcebook?
The Prudential Sourcebook is a single source that brings together Prudential Requirements for banks, building societies, investment firms, and insurers, including directive friendly societies. These will include the Basel II credit risk standards which are due for implementation in 2006. The life insurers part of this is due to be implemented at the end of 2004 and are detailed in policy paper PS04/16.
PS04/16 what is it?
On the 2nd July, 2004 the Financial Services Authority in the UK published a set of 'near final text' rules for its new capital based reserving regime to help limit risk for both the policyholders and the insurer.These requirements, which will be finalised by the end of 2004, apply to life insurers with-profits funds, non life insurers and re insurers. These rules are defined in the document PS04 / 16. This is developed from the Consultation paper CP195 (published July 2003) which mapped out the proposals for the capital requirements and extended the Basel 2 'three pillar' approach to life insurers with a view to having a more similar approach between banks and insurance firms.
The Integrated Prudential Source book will mean that the capital held in a financial firm is more aligned to the risk of the business they write. Insurance firms will have to factor in on a policy by policy basis what they expect the premiums to be and expected payouts as well as bonuses. This will be especially important for the with-profits business.
With profits companies will have to hold the higher of their regulatory requirements or their realisitic requirements - commonly known as the twin peaks approach.
Non-life insurers will still have to meet the Solvency 1 requirements from the EU Directives, but in addition will have to provide a risk based enhanced capital calculation to the FSA on a private basis.
Firms will have to make their own assesments of the capital they require Individual Capital Assessment and in turn the FSA will set the amounts Individual Capital Guidance.
In order to calculate this, actuarial software systems such as Prophet or Moses can be used to model the policy calculations. These systems are usually supported by many of the big 5 Accounting Companies such as Deloittes and PWC.
Related Documents - CP195, CP190 and PS04/16 are available from the FSA's website. See the link on the left of this section.
Please use the sub sections links on the left or the content links to find out more about Integrated Prudential Sourcebook.
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