PRA Updates SS18/16 on Longevity Risk Transfers Under Solvency II
PRA published the policy statement PS1/20, which contains an updated version of the supervisory statement SS18/16 on longevity risk transfers under Solvency II and provides feedback to responses to the consultation paper CP3/19 titled "Solvency II: Longevity risk transfers – simplification of pre notification expectations." PS1/20 is relevant to UK firms that fall within the scope of the Solvency II Directive and to the Society of Lloyd’s. This policy will take effect on the publication of PS1/20. From then on, firms will be expected to notify PRA about the new longevity risk transfers according to the text of the revised SS18/16.
Following the publication of PS1/20, Chapter 2 of SS18/16 was updated to reflect the view of PRA that recognizing basis risk is an important component that should be part of the risk appetite of any firm carrying out longevity risk transfers. Additionally, Chapter 3 was updated to differentiate the PRA expectations of pre-notification for transactions that are large and/or complex, with the inclusion of a reporting template to simplify the notification process for transactions that do not fall within this category.
In CP3/19, PRA had proposed to change its expectations for pre-notification of longevity risk transfers and hedge arrangements and to update the key risks arising from longevity risk transfers. PRA had received one response to this consultation paper. The respondent was welcoming of the overall proposals and intention of the consultation. The response highlighted areas where the proposed reporting template may be unclear and expressed reservation about the basis risk being singled out for specific additional focus. After considering the response, PRA has decided to make two clarifications to the draft policy:
- Amend the headings used in the reporting template, providing more clarity on how firms should complete them, including explanatory footnotes
- Change the phrasing on how firms should include basis risk in their risk assessments of longevity risk transfers
The policy set out in PS1/20 has been designed in the context of the current UK and EU regulatory framework. 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 EU take effect. In the event that the UK leaves the EU with no implementation period in place, PRA has assessed that the policy would not need to be amended under the EU (Withdrawal) Act 2018.
Related Links
Effective Date: January 09, 2020
Keywords: Europe, UK, Insurance, Solvency II, Longevity Risk Transfers, PS 1/20, CP 3/19, SS 18/16, PRA
Featured Experts
Adam Koursaris
Asset and liability management expert; capable modeler; risk and capital specialist
Cassandra Hannibal
Life insurance actuary; risk management and economic capital specialist
Jerome Ogrodzki
Insurance asset and liabilities modeling specialist; stochastic modeling expert
Previous Article
ESRB Presents Policy Options on Margins and Haircuts for DerivativesRelated Articles
EU Agencies Update LCR Rule and Macro-Prudential Policy Recommendation
The European Commission (EC) published the Delegated Regulation 2022/786 with regard to the liquidity coverage requirements for credit institutions under the Capital Requirements Regulation (CRR).
EBA Publishes Regulatory Standards to Identify Shadow Banking Entities
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying the criteria to identify shadow banking entities for the purposes of reporting large exposures.
OSFI Discusses Benchmark Rate Transition, Sets Out Work Priorities
The Office of the Superintendent of Financial Institutions (OSFI) published the strategic plan for 2022-2025 and the departmental plan for 2022-23.
EBA Proposes Standards to Support Secondary NPL Markets
The European Banking Authority (EBA) is consulting, until August 31, 2022, on the draft implementing technical standards specifying requirements for the information that sellers of non-performing loans (NPLs) shall provide to prospective buyers.
EU Confirms Agreement on Rules on Cybersecurity and Banking Resolution
The European Council and the Parliament reached an agreement on the revised Directive on security of network and information systems (NIS2 Directive).
EBA Issues Standards for Crowdfunding Service Providers Under ECSPR
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying information that crowdfunding service providers shall provide to investors on the calculation of credit scores and prices of crowdfunding offers.
EU to Amend Credit Risk Adjustment Rules; ESAs Submit Queries on SFDR
The European Council published a draft Commission Delegated Regulation to amend the regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.
EU Confirms Agreement on Rules on Cybersecurity and Banking Resolution
The European Securities and Markets Authority (ESMA) published a paper that examines the systemic risk posed by increasing use of cloud services, along with the potential policy options to mitigate this risk.
MAS Amends Notice 635 and Issues Second Proposal on Green Taxonomy
The Monetary Authority of Singapore (MAS) published amendments to Notice 635, which sets out requirements that a bank in Singapore has to comply with when granting an unsecured non-card credit facility to individuals.
EC Consults on PSD2 and Open Finance; EU Reaches Agreement on DORA
The European Commission (EC) published a public consultation on the review of revised payment services directive (PSD2) and open finance.
