This page is for Solvency II implementation news and material of interest to firms and the UK insurance industry more widely.
On 25 May the PRA issued two publications of interest to Solvency II-affected firms:
- Solvency II: Monitoring model drift and standard formula SCR reporting for firms with an approved internal model - CP22/16. In this consultation paper the PRA proposes a draft supervisory statement setting out the PRA's approach to monitoring model drift and expectations on firms with an approved internal model to report the standard formula Solvency Capital Requirement (SCR). Responses to the proposals are requested by Wednesday 17 August 2016.
- Recalculation of the 'transitional measure on technical provisions' under Solvency II - SS6/16. This supervisory statement provides clarity with respect to the PRA's expectations, and proposed process, for recalculations of the transitional measure on technical provisions (TMTP) following Consultation Paper 15/16.
On 24 May the PRA updated its Stress testing page to reflect the launch of the European Insurance and Occupational Insurance Authority (EIOPA) 2016 insurance stress test package.
On 11 May the PRA set out the basis of the correct allocation to the lines of business, and in consequence some issues on the unbundling of contracts, that the PRA expects for reporting insurance contracts under employer’s liability insurance and motor insurance. The information in the note (see the Detailed technical information webpage – link below) is based on the Solvency II Directors’ update letter of 14 July 2015 (see link) on employer’s liability insurance and motor insurance which was issued to firms to enable their compliance with Solvency II by 1 January 2016. This note is relevant to all firms in scope of Solvency II and to the Society of Lloyd’s and relates to the Implementing Technical Standards on Supervisory Reporting.
Detailed technical information
Solvency II Director's letter, 14 July 2015
On 5 May, to support the PRA’s compliance with EIOPA initiatives and Directive requirements, the PRA issued a request to all Category 1 – 5 insurance firms to complete a short questionnaire in relation to External Credit Assessment Institutions (ECAIs) licences and reassessment of credit quality steps by 16 May 2016.
On 5 May the PRA published two consultation papers requesting feedback by 5 August:
Solvency II: consolidation of Directors' letters - CP20/16
: the PRA sets out its proposals for streamlining the presentation of thw ways in which it expects firms to meet various requirements of Solvency II. The draft and updated supervisory statements appended to this CP set out the PRA's expectations of firms that were in formats including Solvency II Directors' letters, Executive Director's letters and feedback statements published in the period 1 April 2013 to 15 February 2016.
On 25 April the PRA published a letter sent to the CEOs of those firms that participated in the General Insurance Stress Test 2015 with headline results and feedback.
On 7 April the PRA published Solvency II: Remuneration requirements - CP13/16 which seeks feedback on a draft supervisory statement with the PRA’s expectations for compliance with the key Solvency II remuneration requirements. The consultation closes on Thursday 2 June 2016.
On 31 March the PRA published Equity release mortgages – Discussion Paper 1/16
. The PRA asks for views on equity release mortgage (ERM) valuation, capital treatment, risk management and associated matters, and seeks a range of views on good practice for managing the risks introduced by investing in this asset class. While the DP is most relevant to life insurance and reinsurance companies with ERM exposure, it will also be of interest to other insurers, industry stakeholders (including, without limitation, banks, building societies, other lenders, trade bodies, brokers, credit rating agencies, consultants, actuaries and auditors) and academics. By opening the discussion to a range of stakeholders, the PRA is aiming to consolidate views from across sectors. The discussion process closes on Friday 27 May 2016.
On 11 March the PRA updated The PRA’s approach to insurance supervision to reflect, most significantly, the implementation of the Solvency II regime from 1 January 2016. The PRA’s approach to banking supervision was also updated.
On 7 March the PRA published a presentation from the Solvency II XBRL technical event held on 3 March 2016 for; i) category 1-3 firms that have already submitted returns during the preparatory phase; ii) category 4 and 5 firms that will make their first submission in 2016; iii) solution vendors; and iv) other industry stakeholders.
The presentation includes a section that was delivered by the Business Reporting - Advisory Group, aimed at individuals in firms and solution vendors responsible for technical aspects of firms’ reporting.
PRA Solvency II XBRL technical event presentation February 2016
On 24 February the PRA issued templates and instructions to all life and general insurance firms in scope of Solvency II that are subject to day 1 reporting to provide high quality data to supplement that reporting. The information gathered will be used by the PRA to monitor how firms have been implementing Solvency II, what benefit is being obtained from the various approvals, and to support PRA decision making and supervisory review. Firms should get in touch with their usual supervisory contact if they have any questions.
On 18 February the PRA published Solvency II: internal model reporting codes and components - SS37/15 UPDATE. The statement was updated to provide the additional flexibility when assigning codes to internal model Solvency Capital Requirement (SCR) components being reported (internal model SCR component codes remain a six character code). The appendix has been updated to reflect additional flexibility in use of characters 4 and 5 of the code; these characters are now letters or numbers.
On 17 February Andrew Bulley, Director of Life Insurance at the PRA, gave a speech ‘The New Solvency II Landscape’ to the Investment and Life Assurance Group Limited (ILAG) Conference.
On 15 February the PRA updated its Stress testing page to reflect that European Insurance and Occupational Insurance Authority (EIOPA) had announced its plan to hold Europe-wide stress tests in 2016.
Update 12 February - Before the end of February 2016, the PRA will be issuing templates and guidance and requesting all life and general insurance firms in scope of Solvency II that are subject to day 1 reporting to provide high quality data to supplement that reporting. Responses from firms will be requested by Friday 20 May. The information gathered will be used by the PRA to monitor how firms have been implementing Solvency II, what benefit is being obtained from the various approvals, and to support PRA decision making and supervisory review.
On 9 February the PRA issued three items of interest to Solvency II insurers.
1. A letter from the PRA’s Insurance Directors on ‘Longevity risk transfers’. This letter sets out the PRA’s views on the general issues arising from longevity risk transfers and clarifies the PRA’s expectations of UK insurers and reinsurers carrying out these transactions as either the buyer or the seller of longevity protection.
2. ‘Solvency II internal model approval process data review findings’. This report completes and supersedes the Financial Services Authority’s ‘Solvency II: internal model approval process data review findings’ issued in September 2012. While the report is aimed primarily at firms that have received model approval and who are developing plans for future improvement or maintenance of the internal model, it will also help firms in the pre-approval process.
3. ‘Directors’ certificates for 2015/2016 PRA regulatory returns from insurers’. Following discussions with insurers and audit firms, the PRA shares examples for the possible wording of directors’ certificates accompanying the final insurance regulatory returns for 2015 that will be filed under the new Solvency II regime. This note is aimed at being helpful to firms as IPRU(INS) Appendix 9.6 requiring a statement of ongoing compliance with parts of the PRA Rulebook was superseded with Solvency II requirements on 1 January 2016.
On 28 January the PRA issued invitations to a technical briefing on Solvency II XBRL on Thursday 3 March 2016. Invitations have been issued to; i) category 1-3 firms that have already submitted returns during the preparatory phase; ii) category 4 and 5 firms that will make their first submission in 2016; iii) solution vendors; and iv) other industry stakeholders.
The briefing will include presentations from Business Reporting - Advisory Group and is aimed at individuals in firms and solution vendors responsible for technical aspects of firms’ reporting submissions. Please send any queries about the briefing to PRAEventsManagement@bankofengland.co.uk.
On 15 January Sam Woods, Executive Director of Insurance Supervision, issued a letter ‘Reflections on the 2015 Solvency II internal model approval process’. The letter focuses on the use by the PRA of a ‘Quantitative Framework’ as one tool to assist with decision making in the internal model approval process. While the general philosophy set out in the letter has applied to all model reviews, the focus of the annex is on life issues. The letter also sets out the PRA’s views on the Solvency II Solvency Capital Requirement, whether it results from the use of an internal model or the standard formula.