This consultation seeks views on a draft supervisory statement which sets out the Prudential Regulation Authority’s (PRA) expectations of firms in relation to the recognition of:
- deferred tax assets (DTA) on the Solvency II (SII) balance sheet; and
- the tax effects of the 1 in 200 shock loss on the capital requirement calculation.
The Solvency II regime permits a firm to recognise DTA and the tax effect of the 1 in 200 shock loss to the extent that it can demonstrate that it is “probable” that it will be able to benefit from them.
The supervisory statement is aimed at firms and groups (‘firms’) within the scope of SII, together with their advisors. It is equally relevant for life and general insurers, regardless of whether they plan to use the standard formula or will be applying to use an internal model.
The purpose of this statement is to:
- highlight areas to which a firm should pay particular attention when considering whether it can recognise a deferred tax asset (DTA) or the tax effects of a 1 in 200 shock; and
- explain the PRA’s expectations in relation to evidence supporting the credibility of profit projections.
The consultation closed on Wednesday 19 March 2014.