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    PRA Statement on Regulatory Changes Impacting Calculation of SCR

    November 20, 2019

    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.

     

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    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

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