PRA published a policy statement (PS18/19) that contains the final supervisory statement (SS5/19) on liquidity risk management for insurers. PS18/19 also provides feedback to responses to the consultation paper CP4/19 on liquidity risk management for insurers. PS18/19 is relevant to all UK Solvency II firms, including in respect of the Solvency II groups provisions, the Society of Lloyd’s and its managing agents, and non-directive insurers.
The areas addressed in SS5/19 include the following:
- Development and maintenance of proper policies, systems, controls, and processes (Chapter 2)
- Identification of material liquidity risk drivers (Chapter 3)
- Design and undertaking of forward-looking scenario analysis and stress testing programs (Chapter 4)
- Considerations for the inclusion of highly liquid assets in the liquidity buffer (Chapter 5)
- Use of quantitative metrics and tools for measuring and monitoring liquidity risk drivers (Chapter 6)
- Effective contingency planning (Chapter 7)
PRA received thirteen responses to CP4/19. Respondents generally welcomed the proposals, and made a number of observations and requests for clarification. PRA’s feedback to these responses is set out in Chapter 2 of PS18/19. After considering the responses, PRA has made some changes to the draft policy. The most significant amendments involve clarifying expectations of PRA on the definition of risk limits within the liquidity risk appetite framework of an insurer and the role of the board in managing liquidity risk. In addition, the function and characteristics of the liquidity buffer have been clarified. A number of editorial amendments were made to improve the clarity of SS5/19 and are not explicitly addressed in PS18/19.
The expectations set out in SS5/19 and the withdrawal of Legacy Supervisory Statement (LSS) 2/13 on expectations in relation to firms' risk management practices have immediate effect. SS5/19 should be read in conjunction with SS1/19 on the PRA approach after the withdrawal of UK from EU and with the joint BoE and PRA Statement of Policy (SoP) on interpretation of EU guidelines and recommendations related to the BoE and PRA approach after the withdrawal of UK from EU.
Effective Date: September 24, 2019
Keywords: Europe, UK, Insurance, Solvency II, Stress Testing, Liquidity Risk, PS 18/19, SS 5/19, Liquidity Risk Management, PRA
Previous ArticleOCC Publishes Report on Trading and Derivatives Activities of Banks
EBA published a report analyzing the impact of the unwind mechanism of the liquidity coverage ratio (LCR) for a sample of European banks over a three-year period, from the end of 2016 to the first quarter of 2020.
In response to questions from a member of the European Parliament, the ECB President Christine Lagarde issued a letter clarifying the possibility of amending the AnaCredit Regulation and making targeted longer-term refinancing operations (TLTROs) dependent on the climate-related impact of bank loans.
IASB started the post-implementation review of the classification and measurement requirements in IFRS 9 on financial instruments and added the review as a project to its work plan.
FSB published a report that examines progress in implementing policy measures to enhance the resolvability of systemically important financial institutions.
EBA published a report on the benchmarking of national loan enforcement frameworks across 27 EU member states, in response to the call for advice from EC.
FSB published a letter from its Chair Randal K. Quarles, along with two reports exploring various aspects of the market turmoil resulting from the COVID-19 event.
RBNZ launched a consultation on the details for implementing the final Capital Review decisions announced in December 2019.
The Trustees of the IFRS Foundation, which are responsible for the governance and oversight of IASB, have announced the appointment of Dr. Andreas Barckow as the IASB Chair, effective July 2021.
HKMA issued a letter to consult the banking industry on a full set of proposed draft amendments to the Banking (Capital) Rules for implementing the Basel standard on capital requirements for banks’ equity investments in funds in Hong Kong.
ESRB published an opinion assessing the decision of Swedish Financial Supervisory Authority (FSA) to extend the application period of a stricter measure for residential mortgage lending, in accordance with Article 458 of the Capital Requirements Regulation (CRR).