Solvency II: Group availability of subordinated liabilities and preference shares

Policy Statement 10/20 | Consultation Paper 16/19

Published on 30 April 2020

Solvency II: Group availability of subordinated liabilities and preference shares – PS10/20

Overview

This Prudential Regulation Authority (PRA) Policy Statement (PS) provides feedback to responses to Consultation Paper (CP) 16/19 ‘Solvency II: Group availability of subordinated liabilities and preference shares’ (page 2 of 2). It also contains the PRA’s final policy in an updated version of Supervisory Statement (SS) 9/15 ‘Solvency II: Group supervision’ (see Appendix).

This PS is relevant to all insurance firms within the scope of group supervision under the Solvency II Directive and to the Society of Lloyd’s. 

Summary of responses

The PRA received four responses to the CP. Respondents made a number of observations and requests for clarification which are set out in Chapter 2.

The PRA has added additional material to SS9/15 to clarify the final policy after considering points raised by respondents. These and the content consulted on have been inserted in chapters 5A and 5B as paragraphs 5A.2A, and 5B.1A to 5B.1E. Paragraph 5A.2AA in the updated supervisory statement was previously paragraph 5A.2A. The changes are aimed at providing readers with greater clarity on the PRA’s assessment of group availability for different types of groups, and on the legal requirements that restrict the ability of subordinated liabilities and preference shares to absorb all types of group losses. Details of the changes are included in Chapter 2.

A number of syntactic amendments were made to improve the clarity of the SS and are not explicitly addressed in this PS.

The PRA does not consider that the changes and syntactic amendments have significant impact on firms, including mutuals, in meeting expectations when compared to the cost benefit analysis presented in the CP.

Implementation

This policy will take effect on publication of this PS on Thursday 30 April 2020.

The policy set out in this PS has been designed in the context of the UK’s withdrawal from the European Union and entry into the transition period, during which time the UK remains subject to European law. The PRA will keep the policy under review to assess whether any changes would be required due to changes in the UK regulatory framework at the end of the transition period, including those arising once any new arrangements with the European Union take effect.

The PRA has assessed that the policy would not need to be amended under the EU (Withdrawal) Act 2018 (EUWA). Please see PS5/19 ‘The Bank of England’s amendments to financial services legislation under the European Union (Withdrawal) Act 2018’ for further details. 

PDFPolicy Statement 10/20


Published on 22 July 2019

Solvency II: Group availability of subordinated liabilities and preference shares - CP16/19

Overview

In this consultation paper (CP), the Prudential Regulation Authority (PRA) sets out its proposed approach to the determination of the availability of subordinated liabilities and preference shares in group own funds, and its expectations of firms in presenting relevant analysis to the PRA. The Appendix sets out proposed amendments to Supervisory Statement (SS) 9/15 ‘Solvency II: Group supervision’ to reflect the proposed approach.

This CP is relevant to all insurance firms within the scope of group supervision under the Solvency II Directive and to the Society of Lloyd’s.

Background

In March 2015, the PRA published SS3/15 ‘Solvency II: the quality of capital instruments’ which clarified the PRA’s expectations of the quality of capital instruments, including instruments intended to count towards group own funds.

In July 2018, the PRA published CP15/18 ‘Solvency II: Group own funds availability’ which set out the PRA’s proposed approach to the determination of the availability of group own funds and its expectations of firms in presenting relevant analysis to the PRA. The PRA’s consideration of responses to the CP were set out in Policy Statement 9/19 ‘Solvency II: Group own funds availability’, and included in an updated version of SS9/15.

Further to these publications, the proposals in this CP would clarify the PRA’s expectations of firms seeking to demonstrate that the Solvency II assumption that subordinated liabilities and preference shares are not available to meet losses elsewhere in the group is inappropriate in a firm’s specific case.

Responses and next steps

This consultation closed on Monday 21 October 2019. The PRA invites feedback on the proposals set out in this consultation. Please address any comments or enquiries to CP16_19@bankofengland.co.uk.

The proposals set out in this CP have been designed in the context of the current UK and EU regulatory framework. The PRA has assessed that the proposals will not be affected in the event that the UK leaves the EU with no implementation period in place.

Implementation

The PRA intends that the proposals in this CP would take effect on publication of the final policy. The proposals would not apply to determinations of availability the PRA has previously made.

PDF Consultation Paper 16/19

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