Solvency II: recognition of deferred tax

Supervisory Statement 2/14

Update on 25 November 2016: SS2/14 was updated to reflect changes consulted on in CP20/16 ‘Solvency II: consolidation of Directors’ letters’.  For an overview of updates made to SS2/14, please see Appendix 1.

PDF Supervisory Statement 2/14 - November 2016 

Update on 20 February 2015:  SS2/14 has been amended to:

  • reflect the subsequent publication in November 2014 of EIOPA guidelines on loss absorbing capacity of deferred tax; and
  • respond to feedback received after publication of SS2/14 requesting more detail regarding the rationale behind PRA expectations set out in SS2/14.

The statement now:

  • highlights areas (in respect of both balance sheet recognition and the solvency capital requirement (SCR) calculation) 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
  • explains what the PRA expects in relation to the credibility of profit projections. 

This update does not change the PRA’s expectation of firms set out in the original statement.

This supervisory statement is relevant to all insurance firms that will be subject to Solvency II (SII), whether life or general, standard formula or internal model, and sets out the Prudential Regulation Authority’s (PRA) expectations of firms in relation to the recognition of deferred tax in SII.

PDF Supervisory Statement 2/14 - February 2015 

Published on 16 April 2014

Background

This supervisory statement is relevant to all insurance firms that will be subject to Solvency II (SII), whether life or general, standard formula or internal model, and sets out the Prudential Regulation Authority’s (PRA) expectations of firms in relation to the recognition of deferred tax in SII.

I
n particular, the statement:

  • highlights areas (in respect of both balance sheet recognition and the solvency capital requirement (SCR) calculation) 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
  • explains what the PRA expects in relation to the credibility of profit projections.

The PRA’s public consultation on this statement closed on 19 March 2014. This statement has been amended to reflect the feedback that was received by the PRA.

PDF Supervisory Statement 2/14 

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