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Findings from FCA’s Covid-19 resilience survey “concerning” says the CII

11th January 2021 - Author: Luke Gallin

Keith Richards, Chief Membership Officer of the Chartered Insurance Institute (CII), has expressed concern over some of the findings from the Financial Conduct Authority’s (FCA) coronavirus financial resilience survey.

In an effort to understand the real-time effect the ongoing pandemic is having on the finances of companies in the UK, the FCA surveyed 23,000 firms in two tranches. Between June 4th and 8th, 13,000 firms received the survey, with an additional 10,000 firms receiving the survey between August 5th and 10th.

After a three-month interval from the initial survey, the FCA repeated the survey for all 23,000 companies; a move it plans to repeat on a regular basis in order to understand how the pandemic impacts the financial sector over time.

As of October 11th, 2020, some 17,115 firms from across General Insurance & Protection, Investment Management, Pensions & Retirement Income, Retail Banking, Retail Investments, Retail Lending, and Wholesale Financial Markets, had responded to the survey. Following the repeat of the survey across the same firms, as of January 7th, 2021, roughly 19,000 firms had responded.

As of the end of October, the FCA singled out 4,000 financial services firms with low financial resilience and at heightened risk of failure.

Following the publication of the data, which shows a significant change in the total amount of liquidity, the CII’s Richards commented: “It is concerning that the FCA has determined 4,000 firms across three key areas are deemed at risk. Also, I am surprised that there is no indication of a proactive plan to help mitigate possible failures during these unprecedented times.

“It is important to protect the interests of the consumers who may also be impacted as well as avoid further financial pressure being placed on the rest of the sector.”

2020 was a challenging year for industries of all shapes and sizes, including for both the insurance and reinsurance sector.

If elevated losses on the liability side of the balance sheet, and fading investment returns as the pandemic intensified weren’t enough to contend with, the well-documented business interruption (BI) issue raised further questions and left many policyholders frustrated.

“We must appreciate how well firms have done to weather successive storms of lockdowns, health and economic impacts and obviously the additional effect of people’s personal lives as well. The work our members have done in this period to maintain and even go beyond what they normally offer customers, should be commended,” continued Richards.

As highlighted by Richards, it’s worth noting that this survey was done prior to furlough being extended in the UK, which now provides employers with financial support until the end of April 2021, and this time around can be taken flexibly.

“At the time this survey was undertaken there were no vaccines in sight. The announcement of new vaccines has seen markets injected with a little optimism. The flip side to that however, is that it also took place before lockdown 3, which could cause greater damage, despite us feeling so close to an exit from measures to slow the spread of coronavirus,” said Richards.

Commenting on the survey results, Sheldon Mills, Executive Director of Consumers and Competition at the FCA, said: “We are in an unprecedented – and rapidly evolving – situation. This survey is one of the ways we are continuing to monitor the potential impact of coronavirus on firms. A market downturn driven by the pandemic risks significant numbers of firms failing.

“At end of October we’ve identified there are 4,000 financial services firms with low financial resilience and at heightened risk of failure, though many will be able to bolster their resilience as and when economic conditions improve. These are predominantly small and medium sized firms and approximately 30% have the potential to cause harm in failure.

“Our role isn’t to prevent firms failing. But where they do, we work to ensure this happens in an orderly way. By getting early visibility of potential financial distress in firms we can intervene faster so that risks are managed and consumers are adequately protected.”

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