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    PRA Consults on Modeling of the Matching Adjustment Under Solvency II

    November 10, 2017

    PRA published the consultation paper CP24/17 titled “Solvency II: Internal models—modeling of the matching adjustment.” CP24/17 seeks feedback on a draft supervisory statement setting out PRA’s proposed expectations from firms on the application of Solvency II matching adjustment within the calculation of the Solvency Capital Requirement (SCR). The draft supervisory statement includes an updated Chapter 3 from SS17/16, which is titled “Solvency II: internal models – assessment, model change and the role of non-executive directors.” Comments are invited by March 09, 2018.

    The proposals in CP24/17 aim to update and consolidate PRA’s expectations regarding the modeling of the matching adjustment in internal models into a single supervisory statement, in an effort to provide clarity. PRA recognizes that the matching adjustment requirements were finalized later than other elements of the Solvency II Directive. This presented internal model development challenges for firms seeking to reflect the matching adjustment in their models ahead of Solvency II. PRA is aware that, as a result, a number of firms may wish to make changes to their existing modeling approaches for the matching adjustment. There are also likely to be new firms seeking to obtain approval for models that cover the matching adjustment. PRA recognizes the complexity involved in modeling the matching for the purpose of calculating the SCR but also the risk management benefits of doing so. PRA, therefore, seeks to support firms wishing to develop models in this area by offering more clarity on its expectations about the appropriate practices.

     

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    Comment Due Date: March 09, 2018

    Keywords: Europe, UK, Insurance, Solvency II, Matching Adjustment, SCR, CP24/17, SS17/16, Internal Models, PRA

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