PRA Updates SS18/16 on Longevity Risk Transfers Under Solvency II
PRA published the policy statement PS1/20, which contains an updated version of the supervisory statement SS18/16 on longevity risk transfers under Solvency II and provides feedback to responses to the consultation paper CP3/19 titled "Solvency II: Longevity risk transfers – simplification of pre notification expectations." PS1/20 is relevant to UK firms that fall within the scope of the Solvency II Directive and to the Society of Lloyd’s. This policy will take effect on the publication of PS1/20. From then on, firms will be expected to notify PRA about the new longevity risk transfers according to the text of the revised SS18/16.
Following the publication of PS1/20, Chapter 2 of SS18/16 was updated to reflect the view of PRA that recognizing basis risk is an important component that should be part of the risk appetite of any firm carrying out longevity risk transfers. Additionally, Chapter 3 was updated to differentiate the PRA expectations of pre-notification for transactions that are large and/or complex, with the inclusion of a reporting template to simplify the notification process for transactions that do not fall within this category.
In CP3/19, PRA had proposed to change its expectations for pre-notification of longevity risk transfers and hedge arrangements and to update the key risks arising from longevity risk transfers. PRA had received one response to this consultation paper. The respondent was welcoming of the overall proposals and intention of the consultation. The response highlighted areas where the proposed reporting template may be unclear and expressed reservation about the basis risk being singled out for specific additional focus. After considering the response, PRA has decided to make two clarifications to the draft policy:
- Amend the headings used in the reporting template, providing more clarity on how firms should complete them, including explanatory footnotes
- Change the phrasing on how firms should include basis risk in their risk assessments of longevity risk transfers
The policy set out in PS1/20 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 the EU take effect. In the event that the UK leaves the 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.
Related Links
Effective Date: January 09, 2020
Keywords: Europe, UK, Insurance, Solvency II, Longevity Risk Transfers, PS 1/20, CP 3/19, SS 18/16, PRA
Featured Experts
Adam Koursaris
Asset and liability management expert; capable modeler; risk and capital specialist
Cassandra Hannibal
Life insurance actuary; risk management and economic capital specialist
Jerome Ogrodzki
Insurance asset and liabilities modeling specialist; stochastic modeling expert
Previous Article
ESRB Presents Policy Options on Margins and Haircuts for DerivativesRelated Articles
APRA Sets LAC for D-SIBs, Proposes to Enhance Crisis Preparedness
APRA issued a letter on the loss-absorbing capacity (LAC) requirements for domestic systemically important banks (D-SIBs) and published a discussion paper, along with the proposed the prudential standards on financial contingency planning (CPS 190) and resolution planning (CPS 900).
EC to Review Macro-Prudential Rules while ESRB Assesses Policy Stance
The European Commission (EC) launched a call for evidence, until March 18, 2022, as part of a comprehensive review of the macro-prudential rules for the banking sector under the Capital Requirements Regulation (CRR) and Directive (CRD IV).
FSB Sets Out Good Practices for Crisis Management Groups
The Financial Stability Board (FSB) published a report that sets out good practices for crisis management groups.
APRA Penalizes Heritage Bank for Incorrect Reporting of Capital
The Australian Prudential Regulation Authority (APRA) found that Heritage Bank Limited had incorrectly reported capital because of weaknesses in operational risk and compliance frameworks, although the bank did not breach minimum prudential capital ratios at any point and remains well-capitalized.
OSFI Releases Annual Report 2021-2022
The Office of the Superintendent of Financial Institutions (OSFI) released the annual report for 2020-2021.
OSFI Updates Timeline for Implementation of Certain Basel Rules
Through a letter addressed to the banking sector entities, the Office of the Superintendent of Financial Institutions (OSFI) announced deferral of the domestic implementation of the final Basel III reforms from the first to the second quarter of 2023.
EC Defers Adoption of Regulatory Standards for Disclosures Under SFDR
EIOPA recently published a letter in which EC is informing the European Parliament and Council that it could not adopt the set of draft regulatory technical standards for disclosures under the Sustainable Finance Disclosure Regulation (SFDR) within the stipulated three-month period, given their length and technical detail.
FCA Releases MIFIDPRU Application Forms and Third Set of Rules on IFPR
The Financial Conduct Authority (FCA) published the third in a series of policy statements that set out rules to introduce the UK Investment Firm Prudential Regime (IFPR), which will take effect on January 01, 2022.
APRA Finalizes Capital Adequacy Standards for Banks
The Australian Prudential Regulation Authority (APRA) published, along with a summary of its response to the consultation feedback, an information paper that summarizes the finalized capital framework that is in line with the internationally agreed Basel III requirements for banks.
CPMI-IOSCO Seek Comments on Access to Central Clearing and Portability
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) issued a consultative report focusing on access to central counterparty (CCP) clearing and client-position portability.
