PRA Statement on Regulatory Changes Impacting Calculation of SCR
PRA published a statement reminding firms that the deferred part of the Delegated Regulation (EU) 2019/981, which was published by EC on June 18, 2019, will come into effect on January 01, 2020. This may impact the calculation of the Solvency Capital Requirement (SCR). Delegated Regulation (EU) 2019/981 amends Delegated Regulation (EU) 2015/35, which supplements the Solvency II Directive (2009/138/EC).
The changes under discussion relate to:
- Standard Formula component loss-absorbing capacity of deferred tax (LACDT)
- Segmentation of non-life insurance and reinsurance obligations
- Standard deviations for the non-life premium and reserve risk sub-module
- Segmentation of Not Similar to Life Techniques (NSLT) health insurance and reinsurance obligations
- Standard deviations for the NSLT health premium and reserve risk sub-module
Among the changes made to LACDT, there will be a requirement that any increases in deferred tax assets after a stress event shall not be included within the calculation of the tax adjustment to the SCR, unless firms are able to demonstrate to the satisfaction of PRA that it is probable that future taxable profit will be available, against which that increase can be utilized (Article 207 2a in the revised delegated regulation). PRA notes that the change to LACDT regulations will also be relevant for firms that use a Partial Internal Model for the SCR, where LACDT is not included within the scope of that model.
Related Links
Effective Date: January 01, 2020
Keywords: Europe, UK, Insurance, Reinsurance, Solvency II, SCR, Loss-Absorbing Capacity, Deferred Tax, Capital Requirements, Regulation 2019/981, Regulation 2015/35, EC, 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
IAIS Publishes Report on Observations from Its Peer Review ProcessRelated Articles
APRA Finalizes Reporting Standard for Operational Risk Requirements
APRA finalized the reporting standard ARS 115.0 on capital adequacy with respect to the standardized measurement approach to operational risk for authorized deposit-taking institutions in Australia.
ESAs Issue Advice on KPIs on Sustainability for Nonfinancial Reporting
ESAs Issue Advice on KPIs on Sustainability for Nonfinancial Reporting
EBA Consults on Pillar 3 Disclosure Standards for ESG Risks Under CRR
EBA is consulting on the implementing technical standards for Pillar 3 disclosures on environmental, social, and governance (ESG) risks, as set out in requirements under Article 449a of the Capital Requirements Regulation (CRR).
EU Amends CRD4 and CRD5 as Part of Capital Markets Recovery Package
EU published Directive 2021/338, which amends the Markets in Financial Instruments Directive (MiFID) II and the Capital Requirements Directives (CRD 4 and 5) to facilitate recovery from the COVID-19 crisis.
EBA Publishes Single Rulebook Q&A Updates in February 2021
The EBA Single Rulebook question and answer (Q&A) tool updates for this month include answers to ten questions.
ESMA Releases Schema and Instructions for Securitization Reporting
ESMA updated the set of questions and answers (Q&A), along with the reporting instructions and an XML schema for the templates set out in the technical standards on disclosure requirements, under the Securitization Regulation.
EU Rule Amends Requirement for European Single Electronic Format
EU published Regulation 2021/337, which amends the Transparency Directive (2004/109/EC), regarding the use of the single electronic reporting format for annual financial reports.
EU Committee Recommends Systemic Risk Buffer of 4.5% in Norway
The Standing Committee of the European Free Trade Association (EFTA) recommended that a systemic risk buffer level of 4.5% for domestic exposures can be considered appropriate for addressing the identified systemic risks to the stability of the financial system in Norway.
PRA Clarifies Approach to Onshoring of Credit Risk Rules for UK Banks
In a recent statement, PRA clarified its approach to the application of certain EU regulatory technical standards and EBA guidelines on standardized and internal ratings-based approaches to credit risk, following the end of the Brexit transition.
FSB Sets Out Work Priorities for 2021
In a recently published letter addressed to the G20 finance ministers and central bank governors, the FSB Chair Randal K. Quarles has set out the key FSB priorities for 2021.
