LONDON (Reuters) – Large British life insurers would need to report their liquidity positions daily during market crises under new rules proposed on Wednesday by the Prudential Regulation Authority, after it identified information gaps during recent market turmoil.
The global COVID-19 pandemic in 2020 and a UK financial statement in 2022 triggered market disruption. The BoE took action on both occasions to stabilise markets.
“These episodes led to derivative-driven liquidity strains for some insurers, as well as highlighting gaps in insurers’ liquidity risk frameworks,” the PRA said in a consultation document.
Liquidity risk means insurers may not be able to sell investments in time to meet financial obligations, the PRA said.
The regulator said it “identified deficiencies in firms providing accurate data in a timely manner” during the crises, making it hard to understand their risk exposures.
UK life insurers’ exposure to derivatives has more than doubled to 1.4 trillion pounds ($1.78 trillion) since 2018, the PRA said, adding that such instruments can be a “significant source of liquidity risk” during market volatility, as firms face sudden increases in margin payments.
PRA said the proposals would give it access to more timely and consistent information on large UK insurers’ liquidity positions in advance of market crises. The proposals would enable the regulator to force insurers to disclose liquidity positions daily during a crisis.
The new rules would not apply to Lloyd’s of London insurers, the PRA said.
The PRA said it was consulting on the changes until March 31, 2025.
($1 = 0.7854 pounds)
(Reporting by Carolyn Cohn, Editing by Louise Heavens)
