This consultation paper (CP) sets out proposed changes to the PRA’s rules to implement the Solvency II Directive (the Directive) as amended by the Omnibus II Directive (OMD II). It also contains draft supervisory statements which set out the PRA’s expectations of firms and what firms may expect of the PRA.
CP16/14 is the third consultation on the transposition of Solvency II and consults on rules to transpose the amendments to the Directive introduced by OMD II and on the implementation of areas deferred from the previous two CPs issued by the predecessor regulator, the Financial Services Authority (FSA). CP11/22 Transposition of Solvency II – Part 1 was published in November 2011, and CP12/13 Transposition of Solvency II – Part 2 was published in July 2012.
This CP is of primary interest to around 400-450 retail and wholesale insurance firms, and to Lloyd’s. There will also remain approximately 100 small firms, classified as non-Directive firms under both Solvency I and Solvency II. While the regulation of these firms will remain under existing rules, this CP may also be of indirect interest.
Summary of the proposals covered by the CP
CP16/14 consists of four sections:
- Section I (Chapters 2-7) considers the proposed rule changes necessary to implement the Directive as amended by OMD II. This includes the most substantial component – the long-term guarantees (LTG) package. The changes will require amendments to the draft rules consulted on in CP11/22 and CP12/13.
- Section II (Chapters 8-12) covers areas not considered in the previous two consultations, or where the PRA’s approach has developed since. In particular, it includes new proposals on surplus funds in response to feedback received on CP12/13.
- Section III (Chapters 13-14) provides feedback on responses to two parts of CP12/13: i) the approach to Lloyd’s; and ii) public disclosure of capital add-ons and undertaking specific parameters.
- Section IV (Chapter 15) provides an economic cost benefit analysis that considers the impact, as a whole, of the most material proposed rule changes introduced in CP16/14 – the LTG package.
Appendices to CP16/14 include proposed changes to the PRA Rulebook, draft supervisory statements and national specific templates and log files.
The PRA anticipates further changes to its Rulebook and the issue of further supervisory statements in order to implement Solvency II.
The PRA is required to transpose the Directive by Tuesday 31 March 2015, and the Solvency II regime will apply to all affected firms from 1 January 2016.
This consultation closed on Friday 7 November 2014.
CP16/14 is 251 pages in its entirety. To be helpful to users, the Prudential Regulation Authority (PRA) has divided the CP into four parts, and included the individual related documents for Appendix 3: National Specific Templates and Log Files
The proposed national specific templates and log files have been updated. The new documents can be found on PS2/15 - Appendix 3.