Featured Product

    PRA Finalizes Certain Modeling Issues for Solvency II Internal Models

    April 02, 2020

    PRA published a statement (PS9/20) that sets out the final policy on modeling of income-producing real estate loans and internal credit assessment for illiquid, unrated assets within the Solvency II internal models. PS9/20 contains the final supervisory statement (SS3/17) on Illiquid unrated assets and provides feedback to responses to the consultation paper CP23/19. The expectations set out in SS3/17 come into effect with the publication of the PS9/20 on April 02, 2020. PS9/20 is relevant to UK insurance and reinsurance companies holding or intending to hold income-producing real estate, or IPRE, loans. It is also relevant to firms investing in illiquid, unrated assets within their Solvency II matching adjustment portfolios.

    SS33/17 sets out the PRA expectations in respect of firms investing in illiquid, unrated assets within their Solvency II matching adjustment portfolios. It is relevant to life insurance and reinsurance companies holding or intending to hold unrated assets (including restructured equity release mortgages (ERMs)) in a matching adjustment portfolio. In CP23/19, PRA had proposed the expectations from firms in respect of their modeling of income-producing real estate loans within their Solvency II internal models. PRA also proposed amendments to its expectations in respect of the use of internal credit assessments for assigning fundamental spreads for illiquid, unrated assets. PRA is mindful that the underlying risks and modeling challenges for income-producing real estate loans are generally similar for both insurers and banks holding such assets. Therefore, PRA has attempted to set consistent expectations between insurers and banks, where appropriate. To this end, PRA has considered the differences in the way the Solvency II regulations apply to insurers and the way models for income-producing real estate loans are supervised under the respective Capital Requirements Regulation (CRR) and Directive (CRD IV), which apply to banks. 

    PRA had received six responses to CP23/19. Respondents generally welcomed the proposals but made a number of observations and requests for clarification. After considering this feedback, PRA decided to maintain the expectations set out in CP23/19, but revised the wording of the SS3/17 to clarify some of these expectations. PRA considers that these changes make the final policy clearer and do not result in any additional requirement on firms compared to the original proposals. As a result, PRA did not update the cost-benefit analysis or assessment of the impact on mutuals from CP23/19. Some minor typographical and formatting corrections have also been made and the name of SS3/17 was changed to "Solvency II: Illiquid unrated assets," in line with the proposals in CP23/19.

    The policy set out in PS9/20 has been designed in the context of the withdrawal of UK from EU and its entry into the transition period, during which time the UK remains subject to European law. 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 EU take effect. PRA has assessed that the policy would not need to be amended under the EU (Withdrawal) Act 2018 or EUWA. 


    Related Links

    Effective Date: April 02, 2020

    Keywords: Europe, UK, Banking, Insurance, Solvency II, PS9/20, CP23/19, SS3/17, Real Estate Loans, CRD IV, Internal Models, Matching Adjustment, PRA

    Featured Experts
    Related Articles
    News

    ECB Allows Temporary Relief in Leverage Ratio Amid COVID-19 Pandemic

    ECB published a decision allowing the euro area banks under its direct supervision to exclude certain central bank exposures from the leverage ratio.

    September 21, 2020 WebPage Regulatory News
    News

    ESAs Launch Survey on Templates for Product Disclosures Under SFDR

    ESAs launched a survey seeking feedback on the presentational aspects of product templates under the Sustainable Finance Disclosure Regulation (SFDR or Regulation 2019/2088).

    September 21, 2020 WebPage Regulatory News
    News

    ECB Proposes Integrated Reporting Framework to Reduce Burden for Banks

    ECB published input of the European System of Central Banks (ESCB) into the EBA feasibility report on reducing the reporting burden for banks in EU.

    September 21, 2020 WebPage Regulatory News
    News

    ECB Finalizes Methodology to Assess CCR and A-CVA Risk of Banks

    ECB finalized the guide on assessment methodology for the internal model method for calculating exposure to counterparty credit risk (CCR) and the advanced method for own funds requirements for credit valuation adjustment (A-CVA) risk.

    September 18, 2020 WebPage Regulatory News
    News

    EBA Provides Opinion on Definition of Credit Institution in CRR

    EBA published an Opinion addressed to EC to raise awareness about the opportunity to clarify certain issues related to the definition of credit institution in the upcoming review of the Capital Requirements Directive and Regulation (CRD and CRR).

    September 18, 2020 WebPage Regulatory News
    News

    APRA Consults on Alignment of Daily Liquidity Report for Banks

    APRA is consulting on updates to ARS 210.0, the reporting standard that sets out requirements for provision of information on liquidity and funding of an authorized deposit-taking institution.

    September 17, 2020 WebPage Regulatory News
    News

    FED Releases Scenarios for Second Round of Stress Tests on Banks

    FED released hypothetical scenarios for a second round of stress tests for banks.

    September 17, 2020 WebPage Regulatory News
    News

    FED to Temporarily Revise FR Y-14 Reports to Conduct Stressed Analysis

    FED is proposing to temporarily revise the capital assessments and stress testing reports (FR Y-14A/Q/M) to implement the changes necessary to conduct stressed analysis in connection with the re-submission of capital plans, using data as of June 30, 2020.

    September 17, 2020 WebPage Regulatory News
    News

    FED Revises Information Collection Under Market Risk Capital Rule

    FED adopted a proposal to extend for three years, with revision, the information collection under the market risk capital rule (FR 4201; OMB No. 7100-0314).

    September 17, 2020 WebPage Regulatory News
    News

    EBA Seeks Input on ESG Disclosure Practices of Banks

    EBA published a voluntary online survey seeking input from credit institutions on their practices and future plans for Pillar 3 disclosures on the environmental, social, and governance (ESG) risks.

    September 17, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5809