Featured Product

    PRA Publishes Policy on Equity Release Mortgages Under Solvency II

    September 27, 2019

    PRA published a policy statement (PS19/19) that contains the final supervisory statement (SS3/17) on matching adjustment under Solvency II. PS19/19 also provides feedback to the responses to the consultation paper CP7/19 that proposed amendments to PRA expectations from firms investing in equity release mortgage portfolios. The expectations set out in the updated SS3/17 will come into effect on December 31, 2019. The updated SS3/17 will supersede the version of SS3/17 that was published in December 2018 and was due to come into effect on the same date—that is, December 31, 2019. PRA also released parameters to be used in the Solvency II Effective Value Test (EVT), along with the rationale for parameters, which apply from December 31, 2019.

    PS19/19 is relevant to insurance and reinsurance companies holding equity release mortgages. PRA received 12 responses to the consultation on the equity release mortgages. The responses were generally supportive in several areas, but asked for some clarifications and opposed some of the proposals. Most respondents sought additional transparency about the PRA approach to reviewing the EVT parameters. PRA has amended the draft supervisory statement after further analysis and after considering responses to the consultation. The key changes are as follows:

    • Amended paragraph 3.13A to note that in some circumstances, it may be appropriate for firms to reach agreement with their supervisors on how to value certain assets other than equity release mortgages for the purpose of the EVT.
    • Amended paragraph 3.20A(iv) to note that there is no expectation for firms to allow for the impact on existing lending from discretionary future lending that is not part of a pre-agreed facility.
    • Amended paragraph 3.21A to give more information on inputs to the PRA analysis of real interest rates, to clarify that the movement in the minimum deferment rate of at least 0.5 percentage points applies in general but not necessarily in all circumstances and to state that PRA will publish a rationale for the parameters as a matter of course.
    • Amended paragraph 3.30 to clarify PRA expectations on the scenarios that firms are expected to consider when using the EVT in stress as a validation technique

    PRA has made some additional changes to the draft supervisory statement on its own initiative. These include amendments to paragraph 3.25 to clarify how PRA expects the results of EVT to be reported, along with the minor typographical corrections and clarifications to internal cross-references. The policy set out in PS19/19 has been designed in the context of the current UK and EU regulatory framework. PRA will keep the policy under review to assess whether any changes would be required due to changes in the UK regulatory framework, including those arising once any new arrangements with EU take effect.

    If UK leaves EU with no implementation period in place, PRA has assessed that the policy would not need to be amended under the EU (Withdrawal) Act 2018. SS3/17 should be read in conjunction with SS1/19 on non-binding PRA materials related to PRA approach after UK’s withdrawal from EU.

     

    Related Links

    Effective Date: December 31, 2019

    Keywords: Europe, UK, Insurance, Solvency II, Equity Release Mortgage, PS 19/19, SS 3/17, CP 7/19, Matching Adjustment, Effective Value Test, PRA

    Featured Experts
    Related Articles
    News

    BoE and FCA Outline Next Steps for LIBOR Transition in 2020

    BoE, FCA, and the Working Group on Sterling Risk-Free Reference Rates (RFRWG) have published a set of documents that outline the LIBOR transition priorities and milestones for 2020.

    January 16, 2020 WebPage Regulatory News
    News

    BCRA Updates Regulation on Capital Requirements and Information Regime

    BCRA updated the rules on minimum capital requirements for financial entities and on certain aspects of the information transparency regime for quarterly and annual supervision.

    January 16, 2020 WebPage Regulatory News
    News

    FDIC and OCC Issue Statement on Heightened Cyber Security Risk

    In response to the heightened cyber-security risk facing the financial services industry and other critical business sectors, FDIC and OCC issued an interagency statement on heightened cyber-security risk.

    January 16, 2020 WebPage Regulatory News
    News

    EU Amends IFRS 9 Rule, Changes Concern Interest Rate Benchmark Reforms

    EU published Regulation 2020/34 regarding the International Accounting Standard (IAS) 39 and International Financial Reporting Standards (IFRS) 7 and 9.

    January 16, 2020 WebPage Regulatory News
    News

    BIS to Expand Central Bank Membership

    BIS is to expand its central bank membership base and to increase collaboration in its work as a forum for international cooperation and as a hub for central banks and other financial authorities.

    January 14, 2020 WebPage Regulatory News
    News

    EIOPA Issues Technical Specifications for Market and Credit Risk Study

    EIOPA published the technical specifications, including instructions, for the market and credit risk modeling comparative study for year-end 2019.

    January 13, 2020 WebPage Regulatory News
    News

    FED Publishes FAQs on Tailoring Rules for Banks

    FED released a letter announcing the publication of an initial set of frequently asked questions (FAQs) in response to questions from institutions.

    January 13, 2020 WebPage Regulatory News
    News

    IA of Hong Kong Publishes Stress Testing Scenarios in Relation to ORSA

    IA of Hong Kong published the prescribed scenarios for stress and scenario testing to be used by the authorized insurers conducting general insurance business.

    January 13, 2020 WebPage Regulatory News
    News

    FDIC Letter on Submission of Call Reports by End of January 2020

    FDIC, in a letter to financial institutions, announced that the Consolidated Reports of Condition and Income (Call Reports) for the December 31, 2019 report date must be submitted to the Central Data Repository of the relevant US agencies by January 30, 2020.

    January 13, 2020 WebPage Regulatory News
    News

    EBA Consults on Calculation of Own Funds Requirements for Market Risk

    EBA is consulting on the draft regulatory technical standards for calculation of the own funds requirements for market risk, under the standardized and internal model approaches of the Fundamental Review of the Trading Book (FRTB) framework.

    January 13, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 4489