PRA is proposing (CP5/20) an approach for publication of Solvency II technical information after the end of the transition period for Brexit. In CP5/20, PRA sets out the proposals on the adoption of the EIOPA methodologies underlying the technical information; on the choice of PRA-relevant currencies in which to publish technical information; on how PRA would derive reference portfolios; and on publication of the technical information. The draft Statement of Policy, which has been included as Appendix 1 in CP5/20, explains the ways in which PRA will fulfill its obligations to publish the technical information necessary for valuation of insurance liabilities for each relevant currency. The consultation closes on September 30, 2020.
The following are the salient points of the proposals included in CP5/20, which would apply at the end of the transition period:
- PRA proposes that published technical information would be derived by adopting the same technical methodologies embodied within technical information of EIOPA as at the end of the transition period, with certain limited exceptions. The exceptions have been set out in the draft Statement of Policy and generally include items that PRA must change as a result of the changed legal status of UK, post Brexit, and the resulting alterations in information flows between PRA and EIOPA. These changes would also contribute to the technical information being relevant and credible for UK firms.
- PRA proposes to use certain criteria to determine the PRA-relevant currencies. These criteria would be based on the relative materiality of technical provisions denominated in each currency, as measured by the exposures of insurers in UK, and the currencies for which the firms are authorized to use the volatility adjustmen or matching adjustment, provided that they have non-zero technical provisions in those currencies.
- PRA proposes an approach to determine volatility adjustment reference portfolios (which would inform the calculation of the volatility adjustment), in light of the loss of sharing of regulatory returns data between PRA and EIOPA.
- PRA shall publish the technical information on its website on the 8th working day of each month for all PRA-relevant currencies. This would be in a format similar to the technical information of EIOPA.
CP5/20 is relevant to all UK Solvency II firms, including in respect of the Solvency II groups' provisions, and to the Society of Lloyd’s and its managing agents. Non-Directive firms are out of the scope of CP5/20. The proposed implementation date for the proposals in CP5/20 would be at the end of the transition period, which is expected to be on December 31, 2020. The proposals set out in CP5/20 have been designed in the context of the withdrawal of UK from EU and 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 the EU take effect. PRA has assessed that the proposals would not need to be amended under the EU (Withdrawal) Act 2018.
Comment Due Date: September 30, 2020
Keywords: Europe, EU, UK, Insurance, Solvency II, Technical Information, Volatility Adjustment, Matching Adjustment, Transition Period, CP5/20, Statement of Policy, Brexit, EIOPA, PRA
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