In this consultation paper (CP) the Prudential Regulation Authority (PRA) seeks views on a draft supervisory statement (SS) ‘Liquidity risk management for insurers’ and the consequential supersession of a legacy supervisory statement on collateral upgrade transactions.
The proposals are relevant to all UK Solvency II firms, including in respect of the Solvency II groups provisions, the Society of Lloyd’s (‘the Society’) and its managing agents, and non-Directive insurers (collectively, ‘insurers’).
Summary of Proposals
The draft SS in the Appendix to this CP sets out the PRA’s expectations for liquidity risk management by insurers. These include the key elements of an insurer’s liquidity risk management framework, the consideration of material sources of liquidity risk an insurer may be exposed to, expectations of the design and conduct of a stress testing programme, considerations for assessing asset liquidity, quantitative metrics and tools for measuring and monitoring liquidity risk, and effective liquidity contingency planning.
Legacy SS2/13 ‘Collateral upgrade transactions and asset encumbrance: expectations in relation to firms’ risk management practices’ sets out the PRA’s expectations of banks and insurers engaging in collateral upgrade transactions and described a number of considerations in their management of the associated risk. Upon publication, it is proposed that the new SS would supersede the legacy SS, including the expectation therein to notify the PRA in advance of significant transactions.
Responses and next steps
This consultation closed on 5 June 2019. The PRA invites feedback on the proposals set out in this consultation. Please address any comments or enquiries to CP4_19@bankofengland.co.uk