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    PRA Consults on Matching Adjustments Under Solvency II

    October 25, 2017

    PRA published a consultation paper (CP21/17) proposing its expectations from firms in respect of the application of the matching adjustment. This consultation is the first in a short series of consultation papers on reforms to the implementation of Solvency II. The deadline for comments is January 31, 2018.

    This consultation is relevant to all UK Solvency II firms and to the Society of Lloyd’s and its managing agents, where they are applying or have applied to use the matching adjustment. The consultation paper also proposes to consolidate and update material previously set out in Directors’ letters, Executive Director’s letters, and feedback statements published during April 01, 2013 to February 15, 2016 in a new supervisory statement in Appendix 1. PRA proposes additional guidance in the following areas (with references to the relevant chapter in the draft Supervisory Statement):

    • Asset eligibility—demonstrating cash flow fixity (Chapter 2)
    • Criteria for assessing sufficient compensation (Chapter 2)
    • Restructuring asset cash flows using special purpose vehicles or SPVs (Chapter 2)
    • Trading in the matching adjustment portfolio (Chapter 7)
    • Consequences of breaches of matching adjustment requirements (Chapter 8)
    • Changes to matching adjustment portfolio approval (Chapter 9)

    The consultation paper has been developed by PRA as part of its work on adjustments to the insurance prudential framework in the light of experience following the UK introduction of Solvency II, including in areas recommended for reform by the Association of British Insurers and discussed with the Treasury Committee. Over the coming months, further consultation papers will follow in the series, including proposals on the minor model change process (December 2017) and  proposals to reduce the reporting burden on firms (January 2018). Furthermore, work is underway on the assessment of the feasibility of further simplification to the recalculation of the transitional measure on technical provisions and on the review of the external audit of Solvency and Financial Condition Report.

     

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    Comment Due Date: January 31, 2018

    Keywords: Europe, UK, Insurance, Solvency II, Matching Adjustment, CP21/17, PRA

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