As such, it is a key tool that the PRA uses to deliver its objectives. The SIMR is consistent with the provisions of the Bank of England and Financial Services Act 2016. So whilst the ABI is correct in its assertion that SIMR is not required by the Solvency II directive, it is the consequence of UK legislative choices and not simply an invention of the PRA. Second, there is the thorny topic of approvals under Solvency II and, in particular, internal model approvals. The industry is quite right to point out that the overhead to gaining model approval is considerable. In some cases, weight rather than page length would have been a more appropriate measure of application size. But remember that firms with approved internal models in effect set their own regulatory capital requirements. Once we grant model approval, the PRA has only a very limited ability to adjust a firm’s Solvency Capital 7  Requirement. And as my colleague David Rule previously commented “even acting in good faith, business pressure may create the risk that model changes generating lower capital requirements are favoured over time, and therefore that solvency standards might deteriorate”. In designing our approach, we were also mindful of the FSA’s experience in approving internal models for banks under Basel II, where promised future improvements tended not to materialise. It should therefore come as a surprise to no-one that we approach model approval diligently, sceptically and rigorously.

Now that sounds like rather a mouthful, but fortunately the Bank’s Independent Evaluation Office (IEO) has today published a thorough evaluation of the PRA’s approach to its Insurance Objective. The Bank set up the IEO in 2014 to help Court evaluate the Bank’s performance. Early last year, Court asked the IEO to consider whether we are doing enough of the right sorts of things to deliver the Insurance Objective. The IEO’s report includes a number of interesting findings, which I welcome and find consistent with my own observations from my time as Executive Director of Insurance Supervision. In particular, the IEO found that there is a lot of activity going on in pursuit of policyholder protection. This comes as no surprise to me. The PRA’s insurance supervisors, actuaries and other professionals have in my  9  http://www.bankofengland.co.uk/publications/Documents/speeches/2016/speech877.pdf Source: ABI factsheet https://www.abi.org.uk/~/media/Files/Documents/Publications/Public/2016/KeyFacts/ABIUKInsuranceAndLongTermSavings-KeyFacts.pdf 11 As at 2016Q2, based on insurers’ reporting to the PRA 10  7  All speeches are available online at www.bankofengland.co.uk/speeches  7  experience a strong public-service ethos. They are strongly motivated to protect insurance policyholders, which is for some a more human motivation than safety and soundness. However, the IEO found that we could do more to explain what we mean by “policyholder protection”. Some of this is straightforward, such as ensuring staff have clear legal analysis and understand where and when the PRA should and should not act, and we confirm in our response to the IEO’s report that we will improve that analysis and training where required.