Database

IAS 37 provides the detail. see for example: http://www.iasplus.com/en/standards/standard36 Firms may have reason to consider that a liability is emerging, but don’t have to recognise it in the accounts unless: a present obligation (legal or constructive) has arisen as a result of a past event (the obligating event), payment is probable (‘more likely than not’), and the amount can be estimated reliably. Every firm will have its own method of making these judgements.  This in turn will be influenced by their risk management philosophy. They should offer these judgements to the auditor for an independent view. As an emerging risks regime is put in place and develops experience, there will be false positives which would show up on the bottom line. This would tend to lead to marginal judgements becoming hardened into “not yet, if ever”. A conservative view of emerging liabilities is entirely justifiable. Over time, money tied up by false positives would be rel

Paragraphs 11 and 12 of the PRA guidance paper insuranceappr1304 refer to market failure at the level of a given type of insurance policy e.g. third party motor insurance. The concern is that the beneficiaries of a policy would be denied their rights in the event that an insurer gets into difficulty. Of course, there are mechanisms for the market to pick up the tab for some kinds of insurance policy when an insurer goes out of business. The implication might be that PRA will take a market level view of threats to individual policy types e.g. Employer’s Liability, the more so the more difficult it would be to manage economic risks were those insurances to be withdrawn for whatever reason. EL is of course compulsory, so employment would be impossible without it, Prof Indemnity is highly advisable, its absence would not be in the interests of commerce or the beneficiaries of third party policies. Market-wide action on general threats to policy lines would seem to be the obvious resp

Prudential regulation of insurance has been transferred to a new unit at the Bank of England – the Prudential Regulation Authority (PRA). The PRA’s approach to regulation and supervision has three characteristics:  A judgement-based approach: The PRA will use judgement in determining whether financial firms are safe and sound, whether insurers provide appropriate protection for policyholders and whether firms continue to meet the Threshold Conditions. A forward-looking approach: The PRA will assess firms not just against current risks, but also against those that could plausibly arise in the future. Where the PRA judges it necessary to intervene, it will generally aim to do so at an early stage. A focused approach: The PRA will focus on those issues and those firms that pose the greatest risk to the stability of the UK financial system and policyholders.  The PRA approach to supervision will not seek to operate a “zero-failure” regime. Rather, the PRA will seek to ensure that a f

It was a great pleasure to lecture to Swansea U business and economics students just before Easter. Dr  Jing Chen (Maggie) invited a talk on emerging liability risks. Having explained the risk management and business planning context, the talk provided 4 examples of emerging liability risks: phosphate additives in food long nano fibres diesel engine exhausts night shift work In each case, the students were asked to be the Board of Directors and given 3 options, choose one which would be company policy on that risk. For example: do nothing, divest from that market sector, increase premium, reduce premium, prepare a defence strategy etc. … among the usual choices for insurance risk managers. Responses were provided and they were allowed to change their minds as the consequences of each choice were explained. But they made a choice. Its all about forming a judgment and making a decision. These well educated young people were able to form and evaluate their own judgements in the face

Science is not the decider of fact. For example, cancer is probably the result of an accumulation within a given cell, of seven or so genetic changes, but the courts decide that any given cancer does not have a cumulative cause. The scientific probability of it not being cumulative in nature is very small indeed but the legal fact (following the Phurnacite case) is that it is not. For example, among those who make a claim for whiplash if 65% are actually injured and the test is 80% accurate then the Bayesian odds of making a diagnosis is six to one. The inference is that 86% will be diagnosed! Yet if a random sample of the population is assessed (annual prevalence ~ 1%), the odds are worse than eleven to one (against) that anyone given a whiplash diagnosis actually has such an injury. Given these scientific ‘facts’, the court would be forgiven for deciding either there was no such thing as whiplash or in the alternate, that everyone who makes a claim must be injured and it

Thank you to Roger Nash and the IUA team for inviting me to speak today. I spoke about added phosphate in food and, carbon nanotubes. Having heard a brief narrative, the challenge to the audience was to form an opinion and then identify which key factor needs to be monitored if a new opinion of this risk is to be formed. There were many different answers. It is quite clear that the market is alive and well and that everyone would manage emerging risks in different ways. None of them wrong. By identifying a key factor, the support team could look out for it and be less distracted by the noise that usually surrounds these risks. Given similar briefings on a range of current topics the never-ending list of emerging risks can soon be turned into a list of key changes, many of which will be shared with other risks. Correlated emerging risks would become more apparent.