PRA Consults on Matching Adjustments Under Solvency II
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.
Related Links
Comment Due Date: January 31, 2018
Keywords: Europe, UK, Insurance, Solvency II, Matching Adjustment, CP21/17, PRA
Featured Experts
Paul McCarney
Insurance product strategist; insurance domain expert; extensive experience developing risk assessment frameworks for insurers
Brian Robinson
Actuary; risk management specialist; corporate and capital modelling expert
Previous Article
Andreas Dombret of Bundesbank Speaks on Global Economic IntegrationRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.