PRA issued PS 15/24 finalizing PRA rules and policy materials that will replace Solvency II assimilated law, marks end of phased consultation approach to SLV2 Review.
Reforms and restatement of rules provide a new regulatory framework for maintaining safety and soundness of insurance firms and protecting their policyholders.
Will also advance PRA's secondary competitiveness and growth objective by providing a more streamlined and flexible regulatory regime, enabling investment opportunities.
The UK's new regime will be implemented in full from the end of 2024.
Follows UK PRA Apr. 2024 consulted on restatement of assimilated law, see #209496.
Policy Statement
Provides feedback to responses received to CP5/24 proposals to finalize PRA rules, supervisory statements (SSs), statements of policy (SoPs), reporting and disclosure templates and instructions that will replace Solvency II assimilated law Dec. 31, 2024.
Also confirms PRA final rules and policy material for those areas where near-final rules were provided in PS2/24 (see #202884), PS3/24 (see #203017), and reporting rules set out in PS10/24 (see #214968), these will also take effect on Dec. 31, 2024.
PS15/24 also updates references to Solvency II assimilated law and EU Directives in PRA rules and policy materials to ensure consistent cross-references to final rules.
Contains full set of mapping tables outlining where all relevant Solvency II assimilated law and other materials have been restated into PRA rules and policy material.
Changes to Draft Policy
PRA received 16 responses to CP, but notes final policy in the PS is largely unchanged.
A number of areas were identified where it is appropriate to make minor adjustments to the draft policy such that restatement of assimilated law stays in line with intention.
In addition, made 2 relatively more substantial changes to proposals in CP5/24.
In respect of loss absorbing capacity of deferred taxes under the Standard Formula, introduction of a transitional rule delaying requirement to obtain PRA permission to recognize future taxable profits (FTP) in the LACDT calculation until Dec. 30, 2025.
Firms must comply with criteria set out in the transitional rule when assessing if FTP are probable and in order to recognize benefit of this in their LACDT calculation.
And amendments to proposed ring-fenced fund (RFF) definition to preserve PRA's current policy approach to RFFs, amendments preserve the link to restricted own funds and explicitly exclude matching adjustment portfolios from the definition.
PRA considers these changes are appropriate, improve final rules and policy material.
Amendments to PRA Rules and Policy Materials
PRA Rulebook: Solvency II Reform Instrument 2024 (PRA2024/11), PRA Rulebook: Solvency II Reporting Reform Instrument 2024 (PRA2024/12) and PRA2024/13 PRA Rulebook: Solvency II Instrument 2024 (PRA2024/13) amend relevant Rulebook Parts.
The instruments introduce 3 new Parts: Technical Provisions - Further Requirements; Transitional Measure on Technical Provisions; and Solvency Capital Requirement - Undertaking Specific Parameters, these will all be in place from Dec. 31, 2024.
PS15/24 introduces 2 new SSs: SS1/24Expectations for meeting the PRA's internal model requirements for insurers under Solvency II; and SS8/24Solvency II: Calculation of technical provisions, amends another 48 SSs, details found here.
This includes SS5/15Solvency II: the treatment of pension scheme risk, 7 SSs are deleted, once again these are listed in Appendix 1 to the policy statement.
9 new SoPs are introduced, all listed in Appendix 1, including on SoPSolvency II: The PRA's approach to the permissible recovery period for insurers to restore full cover for their SCR; SoPSolvency II: The PRA's approach to Standard Formula adaptations.
SoPSolvency II: Volatility adjustment permissions; and SoPSolvency II: The PRA's approach to insurance own funds permissions; 2 SoPs amended, noted in Appendix.
A document is also published which lists all appendices to PS15/24 by chapter.
Effectiveness
Implementation date for final rules, policy material reflecting policy changes in PS15/24 is Dec. 31, 2024, includes rules, policies from PS2/24, PS3/24 and PS10/24.
Rule regarding the 25-year transitional to allow firms to continue to treat legacy paid-in preference shares issued prior to Jan. 18, 2015 as not relevant when assessing the compliance of their ordinary shares with certain unrestricted Tier 1 own funds requirements will come into force on Jan. 2, 2026.
Reporting Reform Instrument and additional policy reporting policy material from PS3/24 and PS15/24 come into effect on Dec. 31, 2024, these will be effective for quarterly and annual reporting reference dates falling on and after Dec. 31, 2024.
