Featured Product

    PRA Publishes PS31/18 on Equity Release Mortgages Under Solvency II

    December 10, 2018

    PRA published a policy statement (PS31/18) providing feedback to the responses to a consultation paper (CP13/18) on equity release mortgages (ERMs). PS31/18 also contains the final supervisory statement (SS3/17) that sets out PRA expectations from firms investing in illiquid, unrated assets within Solvency II matching adjustment. The expectations set out in the updated SS3/17 will come into effect on December 31, 2019. PRA also published a letter from David Rule, its Executive Director of Insurance Supervision, which highlights key points related to the consultation and the responses to the consultation.

    PS31/18 is relevant to insurance and reinsurance companies holding ERMs. PRA received 27 responses to the CP13/18. Chapter 2 contains the details of responses received, the PRA feedback, and the final decisions. Post consultation, PRA introduced the following key changes to the draft supervisory statement:

    • Removed proposals on the transitional measure on technical provisions, or TMTP (paragraphs 3.9A, 3.24 and 3.25)
    • Changed the effective date for the policy from December 31, 2018 to December 31, 2019
    • Clarified that the phasing-in period referred to in paragraph 3.21 of SS3/17 is available without supervisory approval to all firms and that the phasing-in period will end on December 31, 2021, being in essence three years from finalization of the policy as set out in the PS31/18, rather than three years from the new effective date of December 31, 2019
    • Removed the best view of the deferment rate parameter, as this is not required for the intended purpose of the Effective Value Test (EVT) as a diagnostic test
    • Introduced additional minor changes to the text to improve clarity

    PRA also intends to consult early in 2019 on the following proposals:

    • When and how PRA will periodically review and publish updated values for the property volatility and deferment rate parameters to be used in the EVT. In particular, PRA will consult on proposals to adjust the deferment rate following a material change in real interest rates, in part with the aim of reducing the sensitivity of the EVT to changes in nominal risk-free rates
    • Where firms include assets other than ERMs in the special purpose vehicle used to restructure ERM loans and how those other assets should be allowed for in the EVT
    • The frequency with which PRA would expect firms to assess the EVT
    • Principles for how PRA would assess the approaches firms could use to model the risks associated with ERMs in their internal models against the Solvency II tests and standards, including whether and how PRA would expect firms to apply the EVT in stress, taking account of PRA’s proposals for how it would vary the deferment rate

     

    Related Links

    Effective Date: December 31, 2019

    Keywords: Europe, UK, Insurance, Solvency II, Equity Release Mortgage, SS3/17, PS31/18, Matching Adjustment, PRA

    Featured Experts
    Related Articles
    News

    BCBS Amends Guidelines on Sound Management of AML/CFT Risks

    BCBS amended the guidelines on sound management of risks related to money laundering and financing of terrorism (ML/FT).

    July 02, 2020 WebPage Regulatory News
    News

    EBA Guidelines on Treatment of Structural Foreign Exchange Under CRR

    EBA finalized the guidelines on treatment of structural foreign-exchange (FX) positions under Article 352(2) of the Capital Requirements Regulation (CRR).

    July 01, 2020 WebPage Regulatory News
    News

    FSB Issues Statement on Impact of COVID-19 Crisis on Benchmark Reform

    FSB published a statement on the impact of COVID-19 pandemic on global benchmark transition.

    July 01, 2020 WebPage Regulatory News
    News

    IAIS Publishes List of Internationally Active Insurance Groups

    IAIS published the list of Internationally Active Insurance Groups (IAIGs) publicly disclosed by group-wide supervisors.

    July 01, 2020 WebPage Regulatory News
    News

    FED Temporarily Revises FR Y-9C With Respect to PPPLF and CARES Act

    FED has temporarily revised the reporting form on consolidated financial statements for holding companies (FR Y-9C; OMB No. 7100-0128).

    July 01, 2020 WebPage Regulatory News
    News

    EC Launches Consultation on Review of Solvency II Directive

    EC launched a consultation on the review of the key elements of Solvency II Directive, with the comment period ending on October 21, 2020.

    July 01, 2020 WebPage Regulatory News
    News

    ECB Consults on Supervisory Approach to Consolidation in Banking

    ECB launched a consultation on the guide that sets out supervisory approach to consolidation projects in the banking sector.

    July 01, 2020 WebPage Regulatory News
    News

    PRA Letter Sets Expectations on Approach to Managing Climate Risks

    PRA published a letter that builds on the expectations set out in the supervisory statement (SS3/19) on enhancing banks' and insurers' approaches to managing the financial risks from climate change.

    July 01, 2020 WebPage Regulatory News
    News

    US Agencies Finalize Amendments to Swap Margin Rule

    US Agencies (Farm Credit Administration, FDIC, FED, FHFA, and OCC) finalized changes to the swap margin rule to facilitate implementation of prudent risk management strategies at banks and other entities with significant swap activities.

    July 01, 2020 WebPage Regulatory News
    News

    IAIS on Package for 2020 Data Collection on ICS and Aggregation Method

    IAIS published technical specifications, questionnaires, and templates for 2020 Insurance Capital Standard (ICS) and Aggregation Method data collections.

    June 30, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5425