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Employer’s Liability, the more so the more difficult it would be to manage economic risks were those insurances to be withdrawn for whatever reason.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 response – otherwise the PRA is asking insurers to subsidise policy lines in times of difficulty. This may not always be possible.
While concerted action on pricing would be politically difficult, PRA could act as a mechanism for market hardening by for example ensuring that reserves against a given policy line are adequate. The guidance seems to take a dim view of revenue expansion as the mechanism for getting out of trouble – this would simply increase the number of unmet rights should the strategy fail.
The question is then how would a competitive market respond to the PRA setting out to protect a given insurance product.
