On Feb. 28, UK PRA issued policy statement on Solvency II review.
PRA issued policy statement (PS) 2/24 Review of Solvency II: adapting to the UK insurance market, containing near-final rules, updated near-final policy materials.
PRA CP12/23 published Jun. 2023, marked important milestone towards adapting Solvency II framework to UK market, set out proposals to deliver significant reforms.
To support competitive, dynamic UK sector while keeping high consumer protection.
Policy Statement
Gives PRA's feedback to responses received to majority of consultation, contains PRA final policy in near-final rules, updated supervisory statements, statements of policy.
While policy statement contains PRA's final policy in relation to the proposed reforms, the related rules and policy materials are considered near-final due to the potential for further changes resulting from PRA's phased plan for consulting on Solvency II reform.
And transfer of remaining firm-facing Solvency II requirements into PRA Rulebook.
Any further changes expected to be minor and near-final rules and policy materials in the policy statement will be finalized later in 2024 as part of transfer of requirements.
PRA's feedback to responses to chapter 4 Reporting and disclosure of consultation not included in this policy statement, will appear in separate reporting policy statement.
PS2/24 provides overview of developments re Solvency II since consultation issued.
Changes to Draft Policy
PRA received 36 responses to consultation, most were supportive of majority of the proposals and the PRA's objectives for the reforms, but also requested amendments.
PRA has therefore made some adjustments to the draft policy, in several areas.
Removal of requirement for firms to disclose residual model limitation capital add-ons (RML CAOs), removal of safeguards from PRA's regular aggregate report on CAOs.
Allowing explicitly for possibility of setting a CAO which moves dynamically in line with certain outputs calculated by a firm in order to reflect how underlying risk deviation varies over time, may benefit firms in mitigating need for as frequent CAOs reviews.
Allowing insurance group up to 6 months after an acquisition to create a clear and realistic plan to integrate any internal models, with 2 years to implement this plan.
Increasing threshold for gross written premiums above which a firm enters Solvency II to £25 million, a further increase of £10 million compared to proposals in consultation.
PRA confirmed in Dec. 2023 no longer expects firms to carry out the financial resource requirements (FRR) test when recalculating transitional measure on technical provisions (TMTP), subject to some case-by-case assessments, earlier than proposed.
PRA considers these changes to draft policy could bring further benefits to firms.
Rule Changes
The near-final PRA Rulebook: Solvency Reform Instrument 2024 will make changes to the following parts of the PRA Rulebook: Glossary; Insurance General Application: Minimum Capital Requirement; Composites; Solvency Capital Requirement - General Provisions; Solvency Capital Requirements - Internal Models; Technical Provision.
Transitional Measures; Conditions Governing Business; Third Country Branches; Insurance - Supervised Run-Off; Run-off Operations; and Group Supervision.
And introduces a new Rulebook part, Transitional Measure on Technical Provisions.
Supervisory Statements
New supervisory statement SS1/24Expectations for complying with the Solvency II internal model requirements, which will become effective from Dec. 31, 2024.
The policy statement also amends the following supervisory statements (SS).
SS5/14Solvency II: calculation of technical provisions and the use of internal models for general insurers; SS15/15Solvency II: approvals; SS17/16Solvency II: internal models - assessment, model change and the role of non-executive directors.
SS4/15Solvency II: solvency and minimum capital requirements; SS12/15Lloyd's.
SS9/15Solvency II: group supervision; SS17/15Solvency II: transitional measures on risk-free interest rates and technical provisions; SS44/15Solvency II: third-country insurance and pure reinsurance branches.
Deletes SS12/16Solvency II: Changes to internal models used by UK insurance firms, SS6/16Maintenance of transitional measure on technical provisions under Solvency II.
Statements of Policy
PS2/24 introduces statements of policy (SoP) on: SoP Solvency II internal models: permissions and ongoing monitoring; SoP Solvency II: capital add-ons.
SoP Permissions for transitional measures on technical provisions and risk-free interest rates; SoP The PRA's approach to insurance group supervision; SoP Mapping table of retained EU law; SoP Mapping table of applicable Branch Guidelines.
Effectiveness
Implementation date for final rules and policy materials reflecting policy changes set out in PS2/24 is Dec. 31, 2024, unless otherwise stated in the policy statement.
On Feb. 29, 2024, UK PRA near-final rules on SLV2 reporting phase 2, see #203017.
