Featured Product

    PRA Finalizes Certain Modeling Issues for Solvency II Internal Models

    April 02, 2020

    PRA published a statement (PS9/20) that sets out the final policy on modeling of income-producing real estate loans and internal credit assessment for illiquid, unrated assets within the Solvency II internal models. PS9/20 contains the final supervisory statement (SS3/17) on Illiquid unrated assets and provides feedback to responses to the consultation paper CP23/19. The expectations set out in SS3/17 come into effect with the publication of the PS9/20 on April 02, 2020. PS9/20 is relevant to UK insurance and reinsurance companies holding or intending to hold income-producing real estate, or IPRE, loans. It is also relevant to firms investing in illiquid, unrated assets within their Solvency II matching adjustment portfolios.

    SS33/17 sets out the PRA expectations in respect of firms investing in illiquid, unrated assets within their Solvency II matching adjustment portfolios. It is relevant to life insurance and reinsurance companies holding or intending to hold unrated assets (including restructured equity release mortgages (ERMs)) in a matching adjustment portfolio. In CP23/19, PRA had proposed the expectations from firms in respect of their modeling of income-producing real estate loans within their Solvency II internal models. PRA also proposed amendments to its expectations in respect of the use of internal credit assessments for assigning fundamental spreads for illiquid, unrated assets. PRA is mindful that the underlying risks and modeling challenges for income-producing real estate loans are generally similar for both insurers and banks holding such assets. Therefore, PRA has attempted to set consistent expectations between insurers and banks, where appropriate. To this end, PRA has considered the differences in the way the Solvency II regulations apply to insurers and the way models for income-producing real estate loans are supervised under the respective Capital Requirements Regulation (CRR) and Directive (CRD IV), which apply to banks. 

    PRA had received six responses to CP23/19. Respondents generally welcomed the proposals but made a number of observations and requests for clarification. After considering this feedback, PRA decided to maintain the expectations set out in CP23/19, but revised the wording of the SS3/17 to clarify some of these expectations. PRA considers that these changes make the final policy clearer and do not result in any additional requirement on firms compared to the original proposals. As a result, PRA did not update the cost-benefit analysis or assessment of the impact on mutuals from CP23/19. Some minor typographical and formatting corrections have also been made and the name of SS3/17 was changed to "Solvency II: Illiquid unrated assets," in line with the proposals in CP23/19.

    The policy set out in PS9/20 has been designed in the context of the withdrawal of UK from EU and its entry into the transition period, during which time the UK remains subject to European law. PRA will keep the policy under review to assess whether any changes would be required due to changes in the UK regulatory framework at the end of the transition period, including those arising once any new arrangements with EU take effect. PRA has assessed that the policy would not need to be amended under the EU (Withdrawal) Act 2018 or EUWA. 


    Related Links

    Effective Date: April 02, 2020

    Keywords: Europe, UK, Banking, Insurance, Solvency II, PS9/20, CP23/19, SS3/17, Real Estate Loans, CRD IV, Internal Models, Matching Adjustment, PRA

    Featured Experts
    Related Articles
    News

    EBA Clarifies Use of COVID-19-Impacted Data for IRB Credit Risk Models

    The European Banking Authority (EBA) published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using the internal ratings based (IRB) credit risk models.

    June 21, 2022 WebPage Regulatory News
    News

    EP Reaches Agreement on Corporate Sustainability Reporting Directive

    The European Council and the European Parliament (EP) reached a provisional political agreement on the Corporate Sustainability Reporting Directive (CSRD).

    June 21, 2022 WebPage Regulatory News
    News

    PRA Consults on Model Risk Management Principles for Banks

    The Prudential Regulation Authority (PRA) launched a consultation (CP6/22) that sets out proposal for a new Supervisory Statement on expectations for management of model risk by banks.

    June 21, 2022 WebPage Regulatory News
    News

    EC Regulation Amends Standards for Calculating Credit Risk Adjustments

    The European Commission (EC) published the Delegated Regulation 2022/954, which amends regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.

    June 21, 2022 WebPage Regulatory News
    News

    BIS Hub Updates Work Program for 2022, Announces New Projects

    The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.

    June 17, 2022 WebPage Regulatory News
    News

    EIOPA Issues Cyber Underwriting Proposal, Statement on Open Insurance

    The European Insurance and Occupational Pensions Authority (EIOPA) published two consultation papers—one on the supervisory statement on exclusions related to systemic events and the other on the supervisory statement on the management of non-affirmative cyber exposures.

    June 17, 2022 WebPage Regulatory News
    News

    US Senate Members Seek Details on SEC Proposed Climate Disclosure Rule

    Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)

    June 16, 2022 WebPage Regulatory News
    News

    EIOPA Consults on Review of Securitization Framework in Solvency II

    The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II.

    June 16, 2022 WebPage Regulatory News
    News

    UK Authorities Issue Regulatory and Reporting Updates for Banks

    The Prudential Regulation Authority (PRA) issued a statement on PRA buffer adjustment while the Bank of England (BoE) published a notice on the statistical reporting requirements for banks.

    June 15, 2022 WebPage Regulatory News
    News

    BCBS Issues Climate Risk Principles while HKMA Expresses Its Support

    The Basel Committee on Banking Supervision (BCBS) issued principles for the effective management and supervision of climate-related financial risks.

    June 15, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8280