Featured Product

    PRA Addresses Life Insurers on Observations from Regulatory Activities

    June 19, 2019

    PRA published a letter from Sid Malik, the Head of Division of Life Insurance and Pensions Risk Division, to Chief Actuaries of life insurers. In the letter, PRA shared its observations from regulatory activities of insurers in the past 12 months and highlighted the areas in which further work is anticipated in the coming year. Further work is anticipated in the areas of model drift, proxy modeling, treatment of expenses in Solvency II technical provisions, and firms' monitoring of matching adjustment portfolios.

    In the past year, PRA has continued to focus the reviews on ensuring that appropriate prudential standards are maintained. The letter highlights following key areas where further industry-wide PRA activity is expected in the next 12 months:

    • Model Drift—PRA is carefully monitoring model drift using supervisory tools developed in recent years. While PRA recognizes the limitations of model drift metrics and takes into account additional factors that may legitimately explain the potential model drift, this is not a trend that is expected to continue over time. PRA encourages firms to develop their own model drift measures and not to limit the model drift analysis to the metrics.
    • Proxy modeling—Most internal model life insurers use a proxy model to calculate their Solvency Capital Requirement (SCR) and recently a sample of firms have been surveyed in this area. Given the wide range of practices observed in the survey, PRA is considering whether to issue a consultation on proposed expectations for how firms can continue to meet internal model tests and standards in respect of proxy modeling.
    • Treatment of expenses in Solvency II technical provisions and SCR—PRA has observed a variety of approaches to the projection of expenses in technical provisions and the treatment of fixed overheads in both the standard formula and the internal model SCR calculations. This appears to be a challenge across the European economic area. EIOPA has issued two question and answer responses on the interpretation of the Level 2 text. PRA considers that it is a good practice to reflect the principles underlying these responses when determining the expense projections for all firms within technical provisions and in the capital requirement calculation. PRA plans to undertake some work in this area across the life insurance sector during 2019.
    • Firms’ monitoring of matching adjustment portfolios—In late 2018, an industry-wide review by PRA identified a broad range in the quality of firms’ internal management information for monitoring regulatory compliance in relation to the matching adjustment. Chief Actuaries may wish to consider the adequacy of how their firm monitors the trading of matching adjustment assets and collateral management. Given the significance of matching-adjustment approval, PRA is contemplating further reviews in this area to ensure firms are adequately monitoring their own compliance.

    Annex 1 to the letter further details these above-mentioned areas where PRA activity is expected in the next 12 months while Annex 2 serves as a reminder on other important areas relevant for life insurers, the areas in which PRA has issued policy or communications. These other areas include climate change, the impact of moving from LIBOR to SONIA, equity release mortgages and other illiquid assets, Solvency II technical provisions, and transitional measures for technical provisions simplification. Finally, Annex 3 to the letter offers additional information on the "bottom up" model drift metrics.

     

    Related Link: Letter

     

    Keywords: Europe, UK, Insurance, SCR, Solvency II, Model Drift, Proxy Modelling, Matching Adjustment, LIBOR, SONIA, Life Insurance, PRA

    Featured Experts
    Related Articles
    News

    BCBS Amends Guidelines on Sound Management of AML/CFT Risks

    BCBS amended the guidelines on sound management of risks related to money laundering and financing of terrorism (ML/FT).

    July 02, 2020 WebPage Regulatory News
    News

    EBA Guidelines on Treatment of Structural Foreign Exchange Under CRR

    EBA finalized the guidelines on treatment of structural foreign-exchange (FX) positions under Article 352(2) of the Capital Requirements Regulation (CRR).

    July 01, 2020 WebPage Regulatory News
    News

    FSB Issues Statement on Impact of COVID-19 Crisis on Benchmark Reform

    FSB published a statement on the impact of COVID-19 pandemic on global benchmark transition.

    July 01, 2020 WebPage Regulatory News
    News

    IAIS Publishes List of Internationally Active Insurance Groups

    IAIS published the list of Internationally Active Insurance Groups (IAIGs) publicly disclosed by group-wide supervisors.

    July 01, 2020 WebPage Regulatory News
    News

    FED Temporarily Revises FR Y-9C With Respect to PPPLF and CARES Act

    FED has temporarily revised the reporting form on consolidated financial statements for holding companies (FR Y-9C; OMB No. 7100-0128).

    July 01, 2020 WebPage Regulatory News
    News

    EC Launches Consultation on Review of Solvency II Directive

    EC launched a consultation on the review of the key elements of Solvency II Directive, with the comment period ending on October 21, 2020.

    July 01, 2020 WebPage Regulatory News
    News

    ECB Consults on Supervisory Approach to Consolidation in Banking

    ECB launched a consultation on the guide that sets out supervisory approach to consolidation projects in the banking sector.

    July 01, 2020 WebPage Regulatory News
    News

    PRA Letter Sets Expectations on Approach to Managing Climate Risks

    PRA published a letter that builds on the expectations set out in the supervisory statement (SS3/19) on enhancing banks' and insurers' approaches to managing the financial risks from climate change.

    July 01, 2020 WebPage Regulatory News
    News

    US Agencies Finalize Amendments to Swap Margin Rule

    US Agencies (Farm Credit Administration, FDIC, FED, FHFA, and OCC) finalized changes to the swap margin rule to facilitate implementation of prudent risk management strategies at banks and other entities with significant swap activities.

    July 01, 2020 WebPage Regulatory News
    News

    IAIS on Package for 2020 Data Collection on ICS and Aggregation Method

    IAIS published technical specifications, questionnaires, and templates for 2020 Insurance Capital Standard (ICS) and Aggregation Method data collections.

    June 30, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5425