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

    PRA Consults on Approach to Supervising Liquidity and Funding Risks

    In consultation paper (CP27/19), PRA published a proposal (CP27/19) to update the supervisory statement SS24/15 on the PRA approach to supervising liquidity and funding risk.

    October 17, 2019 WebPage Regulatory News
    News

    US Agencies Consult on Policy Statement on Allowance for Credit Losses

    US Agencies (FDIC, FED, NCUA, and OCC) are consulting on the policy statement on allowances for credit losses and on the guidance on credit risk review systems.

    October 17, 2019 WebPage Regulatory News
    News

    FSI Paper Examines Use of Suptech Initiatives by Financial Authorities

    The Financial Stability Institute (FSI) of BIS published a paper that examines the suptech developments by analyzing suptech initiatives of 39 financial authorities globally.

    October 17, 2019 WebPage Regulatory News
    News

    FSB Report Examines Implementation and Impact of G20 Financial Reforms

    FSB published fifth annual report on the implementation and effects of the G20 financial regulatory reforms.

    October 16, 2019 WebPage Regulatory News
    News

    EBA Launches Consultation on Comprehensive Pillar 3 Disclosures

    EBA proposed the new comprehensive implementing technical standard (ITS) for public disclosures by financial institutions.

    October 16, 2019 WebPage Regulatory News
    News

    EBA Consults on Revised Technical Standards on Supervisory Reporting

    EBA launched a consultation on the revised implementing technical standards, or ITS, on supervisory reporting.

    October 16, 2019 WebPage Regulatory News
    News

    BCBS Report Examines Progress on Adoption of Basel Framework

    BCBS published the seventeenth progress report on adoption of Basel regulatory framework.

    October 16, 2019 WebPage Regulatory News
    News

    BoE and FCA Examine Use of Machine Learning in Financial Sector in UK

    BoE and FCA published a report on the results of a joint survey by BoE and FCA in 2019 to better understand the use of machine learning in the financial services sector in UK.

    October 16, 2019 WebPage Regulatory News
    News

    FSB Report Examines Implementation of OTC Derivative Reforms

    FSB published annual progress report on implementation of the agreed G20 reforms for over-the-counter (OTC) derivatives markets.

    October 15, 2019 WebPage Regulatory News
    News

    APRA Proposes Measures to Strengthen Capital for Bank Depositors

    APRA proposed changes to APS 111, which is the prudential standard on measuring capital adequacy and establishes the criteria for regulatory capital requirements of authorized deposit-taking institutions.

    October 15, 2019 WebPage Regulatory News
    RESULTS 1 - 10 OF 3981