Published on 25 November 2016
Solvency II: consolidation of Directors’ letters – PS33/16
This Prudential Regulation Authority (PRA) policy statement (PS) provides feedback on the responses, and final supervisory statements (SS) for Consultation Paper (CP) 20/16, ‘Solvency II: consolidation of Directors’ letters’, May 2016.
This PS is relevant to all UK insurance firms within the scope of the Solvency II Directive (‘the Directive’) and to Lloyd’s.
The supervisory statements in the appendices to this PS set out the PRA’s final expectations for the following areas under the Directive, based on material contained in Directors’ letters, Executive Director’s letters and feedback statements (‘Directors’ letters’) issued between 1 April 2013 and 16 February 2016:
- internal models – assessment, model change and the role of non-executive directors;
- longevity risk transfers;
- the own risk and solvency assessment (ORSA);
- reinsurance – counterparty credit risk;
- recognition of deferred tax;
- transitional measures on risk-free interest rates and technical provisions; and
- the treatment of pension scheme risk.
The Directors’ letters that form the basis of these supervisory statements have been archived. Appendix 8 lists the supervisory statements in which the PRA’s expectations, where relevant, are available.
Feedback on consultation responses
The PRA received six responses to CP20/16. Chapter 2 sets out the PRA’s feedback to these responses.
Published on 5 May 2016
Solvency II: consolidation of Directors’ letters – CP20/16
In this consultation paper (CP), the Prudential Regulation Authority (PRA) sets out its proposals for streamlining the presentation of the ways in which it expects firms to meet various requirements of Solvency II (the Directive). 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 (‘Directors’ letters’) published in the period 1 April 2013 to 15 February 2016.
This CP is relevant to all insurance firms within the scope of the Directive and to Lloyd’s.
Summary of proposals
The CP consolidates existing Solvency II guidance, but does not propose any new rules or guidance for firms not previously consulted on. The topics covered in appendices 1-7 are:
- Solvency II: internal models – assessment, model change policy and the role of non-executive directors. The PRA previously issued expectations through a number of Directors’ letters, setting out the PRA’s expectations on internal model approval assessments, maintenance of the model and the PRA’s quantitative framework for assessment.
- Solvency II: longevity risk transfers. The PRA previously set out expectations in a Directors’ letter covering the use and management of these transfers.
- Solvency II: ORSA. The PRA issued an Executive Director’s letter, covering the PRA’s expectations with regard to policy and processes, and the required documents for an effective ORSA policy.
- Solvency II: reinsurance. This is a consolidation of two letters dealing with the PRA’s expectations on reinsurance covering the way the PRA expects firms to deal with conflicting priorities, and soft markets for general insurance firms including reinsurance
- Solvency II: recognition of deferred tax. Consolidates a Directors’ letter and Supervisory Statement (SS) 2/14 covering the PRA’s expectations on the EIOPA Guidelines on the loss-absorbing capacity of technical provisions and deferred taxes, the recognition text, contract boundaries, the risk margin and projection methodology. The SS is updated in light of subsequent guidance provided by the PRA.
- Solvency II: transitional measures on risk-free interest rates and technical provisions. This section updates SS17/15 with information contained in a subsequent Solvency II Directors’ update letter.
- Solvency II: the treatment of pension scheme risk. This section updates SS5/15 in light of information contained in a subsequent Directors’ letter which contained feedback on the way firms’ internal models treated pension risk.
Appendices 8 and 9 include mapping tables for issues both included and not included as draft supervisory statements in Consultation Paper 20/16.
The PRA welcomed views on this consultation up to Friday 5 August 2016.