February 20, 2019

PRA published a policy statement (PS4/19) that provides feedback on responses to the consultation paper (CP27/18) on adjusting for the reduction of loss absorbency where own fund instruments are taxed on write down under Solvency II. Appendix 1 to PS4/19 contains the final policy of PRA on updating the supervisory statement (SS3/15) on quality of capital instruments under Solvency II. Appendix 2 to PS4/19 includes a reporting clarification on how the adjustments should be reflected in Solvency II reporting templates. The new policy will come into effect for all instruments issued on or after February 21, 2019.

PS4/19 is relevant to UK insurance firms within the scope of Solvency II, the Society of Lloyd’s, and firms that are part of a Solvency II group that will determine and classify capital instruments under the Solvency II own funds regime, together with their advisers. PRA had received six responses to CP27/18. Respondents made a number of observations and requests for clarification which, along with the PRA’s feedback, have been set out in Chapter 2 of PS4/19. Changes to the draft policy have been set out in Chapter 1 of PS4/19. SS3/15 covers the following topics:

  • Prohibition on redemption of instruments within five years of the date of issue
  • Liability management and capital reduction
  • Principal loss‐absorbency mechanism for tier 1 instruments subject to limitation
  • Additional considerations for instruments intended to contribute to group own funds

 

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Effective Date: February 21, 2019

Keywords: Europe, UK, Insurance, Solvency II, Loss Absorbency, CP27/18, SS3/15, PS4/19, Reporting, PRA

 

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