This statement of policy (SoP) sets out the Prudential Regulation Authority’s (PRA) approach to considering applications and granting permissions for the use of internal models (IMs) for the purpose of calculating the Solvency Capital Requirement (SCR).
It covers:
- the procedure for considering applications and granting permissions including pre application interaction;
- the PRA’s approach to variations to those permissions to enable firms to make major changes to their IMs;
- how safeguards may be applied to allow permissions to be granted if residual model limitations are identified;
- how significant deviations from the assumptions underlying the Standard Formula may be addressed; and
- details of the approach for continuous review and evaluation of firms’ IMs through the Internal Model Ongoing Review framework.
This SoP is most relevant to firms that have permission to use an IM to calculate their SCR. It will also be of interest to UK Solvency II firms seeking permission to use an IM and to UK Solvency II firms that are part of groups within the European Economic Area (EEA) or non-EEA groups with a group IM.