Solvency II: Longevity risk transfers - simplification of pre-notification expectations

Policy Statement 1/20 | Consultation Paper 3/19

Published on 9 January 2020

Solvency II: Longevity risk transfers – simplification of pre-notification expectations - PS1/20

Overview

This Prudential Regulation Authority (PRA) Policy Statement (PS) provides feedback to responses to Consultation Paper (CP) 3/19 ‘Solvency II: Longevity risk transfers – simplification of pre notification expectations’ (see page 2 of 2). It also contains the PRA’s final policy in an updated version of Supervisory Statement (SS) 18/16 ‘Solvency II: longevity risk transfers’ (see Appendix).

This PS is relevant to UK firms that fall within the scope of the Solvency II Directive and to the Society of Lloyd’s.

Summary of responses

The PRA received one response to the CP. The respondent was welcoming of the overall proposals and intention of the CP. The response highlighted areas where the proposed reporting template may be unclear and expressed reservation about basis risk being singled out for specific additional focus. Further details on the response, and the PRA’s feedback and final decisions are set out in Chapter 2. 

Changes to draft policy

After considering the response, the PRA has decided to make two clarifications to the draft policy:

  • to amend the headings used in the reporting template, providing more clarity on how firms should complete them, including explanatory footnotes; and
  • a change to the phrasing on how firms should include basis risk in their risk assessments of longevity risk transfers. 

Implementation

This policy will take effect on the publication of this PS. From that point, firms will be expected to notify the PRA of new longevity risk transfers according to the text of the revised SS.

The policy set out in this PS has been designed in the context of the current UK and EU regulatory framework. The PRA will keep the policy under review to assess whether any changes would be required due to changes in the UK regulatory framework, including those arising once any new arrangements with the European Union take effect.

In the event that the UK leaves the EU with no implementation period in place, the PRA has assessed that the policy would not need to be amended under the EU (Withdrawal) Act 2018 (EUWA). 

The final SS attached to this PS should be read in conjunction with SS1/19 ‘Non-binding PRA materials: The PRA’s approach after the UK’s withdrawal from the EU’.

PDFPolicy Statement 1/20

Appendix:


Published on 5 February 2019

Solvency II: Longevity risk transfers – simplification of pre-notification expectations - CP3/19

Background

In this Consultation Paper (CP), the Prudential Regulation Authority (PRA) sets out its proposals to update Supervisory Statement (SS) 18/16 ‘Solvency II: longevity risk transfers’. It proposes to change its expectations for pre-notification of longevity risk transfers and hedge arrangements, and update the key risks the PRA considers arise from longevity risk transfers.

This CP is relevant to PRA-authorised UK firms that fall within the scope of the Solvency II Directive and to the Society of Lloyd’s.

Summary of Proposals

The PRA proposes to update SS18/16 to change its expectations for how firms notify the PRA of new longevity risk transfer arrangements; and to highlight an additional key risk (basis risk) which should be included in firms’ assessments of the residual risks these transactions give rise to. 

Responses and next steps

This consultation closed on Monday 6 May 2019. The PRA invites feedback on the proposals set out in this consultation. Please address any comments or enquiries to CP3_19@bankofengland.co.uk.

PDFConsultation Paper 3/19

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