Solvency II: Equity release mortgages

Published on 10 December 2018

Solvency II: Equity release mortgages – PS31/18


This Prudential Regulation Authority (PRA) Policy Statement (PS) provides feedback to responses to Consultation Paper (CP) 13/18 ‘Solvency II: Equity release mortgages’ (see page 2 of 2 of this webpage). It also contains the PRA’s final Supervisory Statement (SS) 3/17 ‘Solvency II: Matching adjustment – illiquid unrated assets and equity release mortgages’

This PS is relevant to insurance and reinsurance companies holding equity release mortgages (ERMs).

The PRA received 27 responses to the CP. The comments received fall under seven broad categories:

(i) The approach for assessing NNEG risk for the purposes of the EVT.
(ii) Calibration of the NNEG assessment.
(iii) Allowance for other risks within the EVT.
(iv) Implications if the EVT is not met.
(v) Proposals in respect of TMTP.
(vi) Solvency Capital Requirement (SCR) calculations.
(vii) PRA objectives and other areas where clarification is sought.

The details of the responses and the PRA’s feedback and final decisions are set out in Chapter 2, grouped under the seven categories above.

Implementation and next steps

The expectations set out in the updated SS3/17 will come into effect on 31 December 2019.

The PRA also intends to consult early in 2019 on additional proposals:

(i) When and how the PRA will periodically review and publish updated values for the property volatility and deferment rate parameters to be used in the EVT (see paragraphs 2.47 and 2.68). In particular, the PRA will consult on proposals to adjust the deferment rate following a material change in real interest rates, in part with the aim of reducing the sensitivity of the EVT to changes in nominal risk-free rates.  
(ii) Where firms include assets other than ERMs in the special purpose vehicle used to restructure ERM loans, how those other assets should be allowed for in the EVT (see paragraph 2.43).
(iii) The frequency with which the PRA would expect firms to assess the EVT (see paragraph 2.68).
(iv) Principles for how the PRA would assess the approaches firms could use to model the risks associated with ERMs in their internal models against the Solvency II tests and standards (see paragraph 2.110), including whether and how the PRA would expect firms to apply the EVT in stress, taking account of the PRA’s proposals for how it would vary the deferment rate.

PDF Policy Statement 31/18

Appendix: SS3/17 ‘Solvency II: Matching adjustment – illiquid unrated assets and equity release mortgages’

Published on 2 July 2018

Solvency II: Equity release mortgages – CP13/18

Update 25 October 2018

The consultation period for PRA CP13/18 ‘Solvency II Equity Release Mortgages’ closed on 30 September 2018. The proposed implementation date for the proposals in the CP was Monday 31 December 2018. Based on feedback to the consultation, the PRA has decided that the implementation date will not be before 31 December 2019. The PRA is making this announcement now in order to clarify the position for insurers planning their year-end 2018 processes. The PRA is currently giving careful consideration to the consultation responses and the impact, if any, of the updated implementation date to the proposed phase-in period. The PRA will publish final policy and supervisory statements in due course.


This consultation paper (CP) sets out further proposed detail on the Prudential Regulation Authority’s (PRA) expectations in respect of firms investing in equity release mortgage (ERMs) portfolios, as set out in Chapter 3 of Supervisory Statement (SS) 3/17. 

The purpose of the proposals is to ensure that, where firms have invested in ERMs and have approval to use the MA or TMTP, their TPs are not understated and that their Solvency II and ICAS balance sheets include appropriate allowance for the risks to which they are (directly or indirectly) exposed. 

This CP is relevant to insurance and reinsurance companies holding ERMs. 

Summary of proposals

The PRA therefore proposes to provide firms with greater clarity on how they should address these aspects of NNEG risks under SS3/17 by setting out an option valuation approach and minimum deferment rate calibration that it considers to be consistent with principles (ii) to (iv).  The PRA does not necessarily consider this to be the only approach that could address the issues identified above but firms using this approach will be meeting the PRA’s expectations for the purposes of applying the EVT.

The proposals included in this CP are:

(i) Firms using the approach and minimum calibration proposed would meet the PRA’s expectations for assessing the allowance for NNEG risk for the purposes of the EVT; 

(ii) Firms holding ERMs should include an explicit allowance for ‘other risks’ within the EVT; 

(iii) Where firms holding restructured ERMs in their MA portfolio cannot meet the EVT then this suggests that they may be taking an inappropriately large MA benefit. Accordingly, they will need to review their current approach and consider making changes to the structure, valuation or rating of restructured ERMs to ensure that they are able to calculate their MA benefit consistently with Solvency II requirements; 

(iv) Firms holding ERMs that benefit from the TMTP should adopt the same approach to an assessment of NNEG and other risks for their ICAS TP calculations as they do for Solvency II TP calculations for the purposes of calculating TMTP to ensure consistency between the calculation bases; and

(v) Firms should consider whether they need to revise their internal models in response to any changes as above. 

Responses and next steps

This consultation closed on Sunday 30 September 2018. The PRA invites feedback on the proposals set out in this consultation. Please address any comments or enquiries to

The proposed implementation date for the proposals in this CP is Monday 31 December 2018.

The PRA recognises that the consequences of applying the new calibrations in the proposed updates to SS3/17 may be significant for some firms. In such cases, the PRA would consider making a proportionate allowance for that impact (ie as a result of these new proposals) on the firm. The PRA would expect this to be a short phase-in period, dependent on the circumstances of the firm, unlikely to exceed 3 years in any event. The PRA would not expect firms to require any phase in period in relation to the expectations in SS3/17 published in July 2017.

PDF Consultation Paper 13/18