This supervisory statement (SS) is addressed to all UK firms that fall within the scope of Solvency II (‘the Directive’), and to Lloyd’s. It sets out the Prudential Regulation Authority’s (PRA’s) expectations of firms regarding internal models.
This statement should be read in conjunction with the PRA’s rules in the Solvency II Sector of the PRA Rulebook, the Solvency 2 Regulations 2015 (2015/575) and the PRA’s approach to insurance supervision document.
In this SS, the PRA sets out its expectations for firms in the following areas:
- internal model applications;
- the assessment of credit risk;
- dealing with variability in premium provisions;
- the effect of stresses on the volatility adjustment;
- the role of non-executive directors;
- model justification and validation and the role of boards;
- the PRA’s use of quantitative analysis in approving models; and
- scope, identification and classification, governance and reporting of internal model changes.