March 05, 2019

PRA is consulting (CP4/19) on a draft supervisory statement on liquidity risk management for insurers and the consequential supersession of a legacy supervisory statement on collateral upgrade transactions. PRA proposes that the expectations in the draft supervisory statement would apply from the date of final publication, which is expected in the second half of 2019. The consultation will end on June 05, 2019.

The proposals are relevant to all UK Solvency II firms, including in respect of the Solvency II groups provisions, the Society of Lloyd’s and its managing agents, and non-directive insurers. The draft supervisory statement in the Appendix to CP4/19 sets out the expectations of PRA for liquidity risk management by insurers. These include the following:

  • Key elements of an insurer’s liquidity risk management framework
  • Consideration of material sources of liquidity risk to which an insurer may be exposed
  • Expectations of the design and conduct of a stress testing program
  • Considerations for assessing asset liquidity
  • Quantitative metrics and tools for measuring and monitoring liquidity risk
  • Effective liquidity contingency planning

The legacy supervisory statement SS2/13 sets out the PRA expectations from banks and insurers engaging in collateral upgrade transactions and describes a number of considerations in their management of the associated risk. Upon publication, it is proposed that the new supervisory statement would supersede the legacy SS2/13, including the expectation therein to notify PRA in advance of significant transactions. Through this proposal, PRA expects to retain the substance of the risk management components of the legacy supervisory statement.

 

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Comment Due Date: June 05, 2019

Keywords: Europe, UK, Insurance, Solvency II, Liquidity Risk Management, Stress Testing, Liquidity Risk, CP4/19, PRA

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