Prudential Standard FSI 6-Liquidity Risk Management for Insurers

The proposed framework introduces a standardised Insurance Liquidity Ratio, requires insurers to embed liquidity risk within their risk appetite statements, and strengthens stress testing and reporting expectations. The changes align domestic rules with the IAIS framework, responding to gaps in insurers' resilience to sudden cash flow pressures. For compliance and risk teams, this signals a material shift from a lighter-touch assessment standard to a comprehensive management standard.

Insurers should review current liquidity risk policies, data capabilities, and governance against the draft requirements. Key actions include assessing readiness for the Insurance Liquidity Ratio, integrating liquidity risk into ORSA/risk appetite, enhancing cash flow stress testing, and preparing for possible reporting changes. Although the standard is not yet final, early gap analysis will reduce implementation strain.

Firms should also consider responding to the consultation to shape final calibration and proportionality. The consultation follows an informal draft in May 2024, with comments already incorporated. Final implementation dates are not yet specified in the provided excerpt.

Overall, this is a significant regulatory development for the insurance sector, with moderate urgency as the consultation progresses. Smaller insurers may need proportionate support, while larger groups should assess group-wide liquidity risk. RegCanary will monitor the final standard and any implementation timeline.